EconoMonitor

Nouriel Roubini's Global EconoMonitor

We Can’t Subsidize the Banks Forever: Government has to show it can handle major insolvencies

From The Wall Street Journal:

The results of the government’s stress tests on banks, to be released in a few days, will not mark the beginning of the end of the financial crisis. If we are to believe the leaks, the results will show that there might be a few problems at some of the regional banks and Citigroup and Bank of America may need some more capital if things get worse. But the overall message is that the sector is in pretty good shape.

OB-DP568_oj_rou_E_20090504185544.jpgChad Crowe
 

This would be good news if it were credible. But the International Monetary Fund has just released a study of estimated losses on U.S. loans and securities. It was very bleak — $2.7 trillion, double the estimated losses of six months ago. Our estimates at RGE Monitor are even higher, at $3.6 trillion, implying that the financial system is currently near insolvency in the aggregate. With the U.S. banks and broker-dealers accounting for more than half these losses there is a huge disconnect between these estimated losses and the regulators’ conclusions.

313 Responses to “We Can’t Subsidize the Banks Forever: Government has to show it can handle major insolvencies”

SantaClausMay 5th, 2009 at 1:49 am

The government has got to come up with a plan to deal with these institutions that does not involve a bottomless pit of taxpayer money. This means it will have the unenviable tasks of managing the systemic risk resulting from the failure of these institutions and then managing it in receivership….And we shouldn’t hear one more time from a government official, “if only we had the authority to act . . .”

I know the answer! In the current system money works as the “fuel”. Money is what gets things done, and cities and counties that do not have enough money have to wait on repairing bridges and paying their workers.The answer is to change the system so that instead of money, the law becomes the fuel. This would in essence mean that things are taken care of, not because someone pays, but because someone orders so.Actually I am not recommending this but if the situation ever gets so bad that the basic functions provided by society (law enforcement, health care, road repairs) start collapsing because of lack of money, it would not surprise me if the government attempted something like this.

GuestMay 5th, 2009 at 3:29 am

So, um, for the people who get ordered to do stuff — how do they pay for their rent, food, utilities, etc., if they’re not getting anything in return for the work they’re doing?

GuestMay 5th, 2009 at 5:56 am

only works if the government owns everything. Or orders companies to accept losses?

CHRIS DAVISMay 12th, 2009 at 3:44 am

Dear Morons,there is a name for this: it’s called the Soviet Union – the only economy to have a negative GNP!!

Wolf int he WildsMay 5th, 2009 at 2:13 am

It is not possible. Too much vested interests at play. At the end of the day, the country will be pushed to the limit before something is done. By then, it will be too late. Corruption is pervasive, and it is ironic that it is happening in the USA, the country that supposedly leads from the moral highground.

GuestMay 5th, 2009 at 3:07 am

is the coruption recent or its been out of public view in the past and is capitalism to blame for it?

MarkMay 5th, 2009 at 7:18 am

It’s the nature of the beast (capitalism). Yes, Marx was right about its eventual outcome, but not for the reasons he stated; rather, it’s because everything was based on growth (again, on a finite planet!). ANY system that operates as such is going to run into what we’re currently experiencing. And what we’re now seeing is the light of the on-coming train (and we’re well into the tunnel!). We think that we have command over the train, we do not. We’re in hard denial; and perhaps we shall never collectively understand what derailed us, as there will be lots of smoke and mirrors deployed in to distract us (an attempt to suppress large-scale revolt).Mark

GuestMay 5th, 2009 at 9:11 am

“Yes, Marx was right about its eventual outcome, but not for the reasons he stated; rather, it’s because everything was based on growth (again, on a finite planet!)”What planet do you live on the collapse is happening precisely for the reasons Marx stated, we’re not collapsing because of a shortage of resources though that would eventually happen it’s because greed has stripped away demand and excess usury has destroyed the economy. It seems like you’re constantly trying to bend reality to fit your ideals, haven’t you repeated your mantra enough. I mean true enough you’re right about growth not being sustainable but that’s only a small part of this collapse. There’s truth to what you say but it’s somewhere down the line, the reason for the collapse in it’s immediacy is hardly what you believe or should I say hope for. I get tired of distortions from the truth even if they’re for a good cause.

CahillMay 5th, 2009 at 11:15 am

Get off Mark’s case. Talk about bending reality to fit your ideals, how can you single handedly blame capitalism? Marxism has failed so many times it would be funny if not for all the innocent people that died in order for the masters to implement the socialistic and communistic plans only to end up failing miserably. Man’s greed is to blame, and currently that is in capitalism, in the past it’s been imperialism, oligarchy’s, communisim, and blatant marxism, all systems fail because man is the greedest creature on earth. It’s a cycle we are doomed to repeat till we go extinct.

CahillMay 5th, 2009 at 4:03 pm

Guest, please use a handle I’d like to know who is dumb enough to say Marxism hasn’t been tried? Has anyone implemented it effectively and honestly….hell no, to that I agree and no one ever will based on my statement above on man’s greed. But to say it hasn’t been tried???

GuestMay 6th, 2009 at 8:57 am

You even said it’s never been tried effectively or honestly. If you think Stalinism was Marxism, then you’re the idiot. China never even claimed that they were trying to follow Marxism in any capacity. Cuba was probably the closest thing to a true example of Marxism, but they are such a small-scale example, and really, Cuba is more of a fascist country than a Marxist one. Marx wanted to see a “stateless” and “classless” society, which obviously is not the case in Cuba, where the state has absolute power.I really don’t think we have any clue whether Marxism would work if it were tried “honestly and effectively”, and without being sabatoged by other countries.And if you think my anonymity makes my ideas somehow inferior, why don’t you post your real name and your real-life address? Why does the name “Cahill” make you such a great poster? Maybe you should post some pictures of your wife and kids too, because I’m sure that would contribute a lot to the current discussion. Idiot.

Cahill or whatever you want to call meMay 6th, 2009 at 3:16 pm

Cahill is my real name dumbass. I wasn’t attacking you, I was clarifying exactly what you said, but you tried to generalize it. It has been tried, innefectively. I’m sure if man could stay out of it, it probably would work, but we won’t. Your anonymity, shows your cowardice/reluctance to claim your argument in public, that’s all. It’s a psychological issue, read up on it. Anyways, I’m kind of done with you now, enjoy your week.

GuestMay 6th, 2009 at 6:37 pm

You missed the point, dumbass. How do I know Cahill is your real name? If you want to make any kind of true connection between the internet and the “real world”, why don’t you post your full name and your address? And by the way, the only reason I’m not signed in is because this is my work computer.But you can try to feel superior all you want. And the whole “I’m done with you” line is a very grade-school thing to say. But, if you can’t win on the issues, then I guess you’ve gotta do what you’ve gotta do to feel like you’re winning the discussion.And you missed the entire point about Marxism. No, it has not been tried. If someone distorts an ideology for their own gain, that’s not really trying it at all. If it was just a case of people attempting to implement a slightly flawed version of Marxism, that would be one thing… but that’s not what happened.

CahillMay 6th, 2009 at 10:25 pm

you really are dumb, my point is that it is NOT POSSIBLE to really try it because there isn’t one living person or group of people out there that will not distort it for their own personal gain. Guess I wasn’t done with you after all and I didn’t feel I was losing this argument at all, actually I feel that you are so far behind on it, it’s not really a fair argument, it’s like trying to tell a 1 year old he can’t fly to the moon by flapping his arms, but you’ll get it someday. Also I’m on my work computer as well and you don’t have to be signed into your account to use a handle, you should be able to see it has an option to type in a name right under what you type there little buddy.

GuestMay 7th, 2009 at 6:38 am

If that was your point, why didn’t you just come out and say it? Work on your communication skills, pal. Anyway, your idea that there is “no one” who would not exploit this idea is laughably cynical. You’re just another one of these perpetual critics who says that nothing will ever work, and of course you have no solutions to offer yourself. I mean really, that was your big point, and you consider yourself some sort of high-minded intellectual? Get over yourself, people like you are a dime a dozen.Besides, you are now contradicting yourself because you previously said, “It has been tried, innefectively” (sic). Make up your mind, has it been genuinely tried or not?And yes, I see the option to sign in, but where is the motivation to do so? Posting as “Cahill” is pretty much just as anonymous as being a “guest”. That’s why you’re throwing insults around like a 12-year old, because you know there is no connection between what you type here, and the real world. But I guess you didn’t understand this very simple point.

subgeniusMay 5th, 2009 at 3:46 pm

from the article:Marx did not miss the importance of this social-ecological relationship. He pointed out that humans are dependent upon nature, given that it provides the energy and materials that make life possible. While capitalists focused on exchange value and short-term gains, Marx explained that the earth is the ultimate source of all material wealth, and that it needed to be sustained for “successive generations.” The “conquest of nature” through the endless pursuit of capital, which necessitated the constant exploitation of nature, disrupted natural cycles and processes, undermining ecosystems and causing a metabolic rift. Engels warned that such human actions left a particular “stamp…upon the earth” and could cause unforeseen changes in the natural conditions that exact the “revenge” of nature.Karl Marx, Capital, vol. 1 (New York: Vintage, 1976), 134, 637-638 and Capital, vol. 3 (New York: Vintage, 1981), 754; Frederick Engels, The Dialectics of Nature (Moscow: Progress Publishers, 1966), 179-180. See also John Bellamy Foster, Marx’s Ecology (New York: Monthly Review Press, 2000), 141-77.

MarkMay 5th, 2009 at 6:15 pm

Talk about totally missing my comments! This always happens when I, a total independent (not pushing any political ideology), confront both rabid right-wingers and left-wingers!Capitalism has shot itself in the foot/feet. It created the rope to hang itself. This happened because it is predicated on growth, period! People can talk greed all they want, but NO system is going to magically erase human traits! While I can agree that excess is EXCESS, the notion that greed is necessarily bad misses out on why it exists in the first place (as a survival mechanism): yes, in today’s power-centered world this characteristic gets applied to levels that are totally unhealthy for civilization.It is lame to trying and defend Marxism by way of argument that it hasn’t really been tried. I hear this from the other side of the stream: capitalism/<whatever>-ism hasn’t really been tried. Well duh! The REAL world isn’t a controlled laboratory! Nothing ever will exist in some perfect mode: not outside the thinking/mental realm.Again, how are ANY of the “ism” models to survive if not supporting endless growth?Mark

GuestMay 6th, 2009 at 9:11 am

What exactly is your point, Mark? “Everything sucks”? Do you have any useful ideas and solutions, or are you just here to complain about anything and everything?

GuestMay 6th, 2009 at 10:43 am

Without awareness and agreement, fellow Guest, there can be no useful ideas or solutions. You see it as complaining. I see it as raising awareness. To-may-to, to-mah-to..

GuestMay 5th, 2009 at 10:52 am

It is not recent. People have been blind to it. And yes, our form of capitalism is to blame. Greed is to blame.

Brett in ManhattanMay 5th, 2009 at 5:08 pm

Oh, Brother, here come the Marxists out of the woodwork.It’s almost impossible to get people to work for money, but, in the Marxist utopian fantasy world, these same people are gonna jump out of bed in the morning and skip to work, strictly out of duty to state.

GuestMay 6th, 2009 at 11:01 am

Mark: Those two articles seem to be written by an extremely articulate, well-read individual, who unfortunately has nothing to say.He doesn’t like capitalism? Ok great. But what’s the point?And he thinks environmentalists can’t accomplish anything by taking on corporations? Well, I don’t accept that at all. Just saying something doesn’t make it true.He thinks Kyoto is a big waste of time? That’s nonsense. The author is capable of finding good quotes from Voltaire or Shakespeare, but he can’t come up with any real, substantive arguments to support his half-assed ideas.Does he want us to “change our mindset”, or does he want us to go live in the woods and abandon society altogether? He never really says what his solution is. He has something against GPS systems and computer monitors, but he publishes articles on the internet? Very wishy-washy stuff all around.Anyway, to answer his original question: “Do environmentalists conspire against their own interests?”. No. They don’t.

GuestMay 6th, 2009 at 3:19 pm

ummm, how about the fact that the growth of polar ice in the south pole has exceeded the loss of polar ice in the north pole by 500%? Seems to make Kyoto a waste of time…..just throwing that out there.

GuestMay 5th, 2009 at 5:55 am

Below looks like a bit too convenient…In fact made me think of a group of kids who wanted to have a party. One of them runs into the room with a paper containing coded information received from the old man who lived across the street and died recently…it could be a treasure map…Anyway, the coup was supposed to happen during Nato exercise? I am sure there are safer times to do coups than that…Besides judging from last years half-hearted ‘international response’, Russia could probably just walk in and overtake the country without too much fuss.Georgia ‘foils Russia-backed coup’ on eve of Nato exerciseshttp://www.timesonline.co.uk/tol/news/world/europe/article6225478.ece

Georgia claimed today to have foiled a Russian-backed plot to stage a military coup on the eve of training exercises involving Nato troops.David Sikharulidze, the Defence Minister, told Georgian television that several hundred troops in the tank battalion had launched a “rebellion” aimed at “overthrowing the authorities” and wrecking the Nato exercises.

RohelioMay 5th, 2009 at 7:54 am

Indeed an attempted coup…but not Russian backed. Consider the source. And, consider who really needs to garner support for yet another NATO expansion.

alp hamzagilMay 5th, 2009 at 5:57 am

Well, it looks like the goverment is exactly thinking of what Mr. Roubini is saying.Here is the article, just posted:’Too-Big-To-Fail’ Banks May Be Next Hot-Button Issuehttp://www.cnbc.com/id/30564553

HayesMay 5th, 2009 at 7:27 am

I think that article relates to expanding FDIC (or a surrogate) to govern non-bank financial institutions –

Aly-Khan SatchuMay 5th, 2009 at 6:24 am

Re: We Can’t Subsidize the Banks ForeverWe have continued to read from a discredited script from the day that Secretary Paulson got trapped in the headlights and the Dow slumped over 400 points. The Parcel was passed and nothing really changed. Call it the CONFETTI rescue. Somewhere along the line, keeping 19 Banks [and all of them] on life support morphed into the US National interest. Instead of a Darwinian process of rewarding the Winners [cutting them loose from Nanny] and culling [breaking up] the Losers, the rescue sought to give a blanket bail out. This behavioural pattern is what happens in a Club. Dear Fred He’s having a hard time, Let’s slot him a billion. A billion becomes a trillion and impunity reigns. The entire premise of Banking is that the Banker makes money. If he does not = He gets stopped out. Now this just might work if the recovery capital was infinite. That seems to me a fundamentally flawed premise. Copper [in the teeth of an unprecedented demand slump] has risen over 50% from the lows, US Interest rates are climbing and calling Bernanke’s bluff. Things are happening under the radar [Copper hardly is] but you have to indeed be closing your eyes tight and shut not to be reading the tape.The Free Markets and by this I mean, markets that are not controlled by Geithner and Bernanke. China, Sovereign Wealth Funds, High Net Worth Money, they are all mobile. If these Banks are ever to meaningfully grow up and leave Nanny’s skirt, they will need to turn to those deep pockets of mobile capital. This optical illusion, the FASB gambit of allowing Banks to value assets on the basis of their ‘significant judgement’ [Why should anyone expect anything more than absolute incompetence from those who remain in situ and have displayed a singular ability to lose money] versus the market all assume a suspension of disbelief.I think in the price of Copper, the break higher in US 10 year yields, we are seeing signs that this suspension of disbelief is not going to hold.The President’s agenda is commendable. The softest of soft underbellies is the economy. Throwing money at the Banks like confetti, not holding them to account in any meaningful way, not applying the basic law of capitalism – put more money with those who can make a return and take it away from those who cannot – seems to me like draining the life blood from US Inc. US Inc is not 19 Banks. It is more than that.Aly-Khan Satchuhttp://www.rich.co.ke/rctools/wrapup.php?dt=MjAwOS0wNS0wNA%3D%3DNairobialykhansatchu@gmail.com

ChignosMay 5th, 2009 at 11:24 am

What if you are Bernanke and/or Paulson and you realize the entire system is insolvent? No bank is better than any other to select for survival….so then what do you do? Answer: they don’t know. That leaves them with only one option (in their minds); viz., fudge all the numbers, set up a smoke screen (the stress test results will be out this week!), and hope for the best. Only problem is: all of those with real capital are onto them. Bernanke/Geithner’s delay tactic won’t result in the retention of the Fed’s power, no matter what they do. Bernanke/Geithner/Paulson have squandered their most precious asset: investors no longer trust them.

MarkMay 5th, 2009 at 6:31 pm

And “real capital” is becoming more and more worthless in what it clearly a system that is failing due to its incompatibility with the natural world.These folks are just looking to slow the train wreck down. Increasing the impact time is a reasonable strategy: this doesn’t, however, mean that it will avert the crash.A friend of mine has started replying to a lot of stupid stuff that he sees around him using the phrase “everything is a nail,” meaning that everyone’s wielding hammers. It’s how everyone has been educated to think, it served the system well (up until the breaking point), served its masters (TPTB) well. Bernanke et al have been trained to be master carpenters; very adroit at hammering, and likely very sincere about wanting to smack the nails with hammers, but, the real world doesn’t understand “hammer,” and no longer will it support such tunnel-vision thinking/behavior.Mark

TobyMay 5th, 2009 at 7:07 am

Latest from dshort:”The April average of daily closes for the S&P 500 was 848.15. Based on the latest Standard & Poor’s spreadsheet, the interpolated TTM earnings number for the index is 4.59. That gives us a conventional P/E of 184.9.Think that’s nuts? Check out the P/E based on today’s close of 907.24 and the May interpolated TTM earnings of 2.51. That gives us a P/E of 361.Maybe I’m too harsh in labeling the conventional P/E as useless. Actually it’s good for a few laughs. “http://dshort.com/charts/SP-Composite-PE-and-PE10-ratios.gif

FEDupMay 5th, 2009 at 7:19 am

Solving this financial crises has become more complicated because of when Mr. Paulson, Bernanke and now Geithner had to choose between mega corporations and the little guy, they chose to save the elites at any cost without any consensus from the American people: a beautiful example of American democracy at work! There are plenty of competent people who could have re-established a sound banking system if only they were given the opportunity: BoA, Citi and the rest could have quickly been restructured and re-operating without missing a beat. Yet, somehow, everything is being done back asswards again and the burden of debt shifted once more to the innocent, struggling middle class taxpayer and future generations. What a shining example of honesty, integrity and fairness!

GuestMay 5th, 2009 at 8:00 pm

I think that you are mistaken in stating that Mr. Paulson, Bernanke and now Geithner had to choose between mega corporations and the little guy. They never had to make that choice their objective is clear, which is to save financials. The choice was for the politicians “congress” to make and we all know what they chose.

GuestMay 5th, 2009 at 7:22 am

Anyone can see what has happened here. Geithner and Bernanke’s whole approach was to short leash this market up to where it is to instill confidence while we leak jobs through the end of the year. A compliant press corps helped and they’ve achieved the goal short term. Maybe it’ll hold but I doubt it. As the Professor said, if they are intent on leaving the banks in purgatory the zombie-esque nature, and failing, of their plan will be exposed at the time when we need it least. That is when commercial R/E is tanking and credit has been slashed. Even Shiller said yesterday he was not convinced the “bottom” was in on Resid. R/E.Result? Double-dip recession.

HayesMay 5th, 2009 at 7:52 am

a great post by Yves yesterdayNew Stress Trial Balloon Floated”I am coming to realize there might be method in the seeming madness of changing dates and shifting sneak previews via favored members of the press as to what the stress tests might entail.Tire out the critics, numb the casual followers, and leave the boosters in firm control of share of mind.Let’s face it, the fact that the authorities are allowing banks to negotiate the findings is a very very bad sign…”http://www.nakedcapitalism.com/2009/05/new-stress-trial-balloon-floated.htmlmeanwhile over at ZH the plot thickens on the Perella Weinberg / White House use of coercion in the Chrysler situationhttp://zerohedge.blogspot.com/2009/05/white-house-claims-head-of-white-case.html______________The above combined with the constant drone from the “compliant press corps” and business shills of “results better than expected”, green shoots, bottom is in, housing turning, economy turning, China growing, worst is behind us etc. suggests to me that it is now impossible to discern between what is real and what is fantasy. Todays NYT features an article on the “housing rebound ” in Florida, Nevada and California. We have Buffett doing a reprise of his October 16 “I’m buying stocks” NY Times Op-Ed , while GE’s Imelt allegedly told subsidiary CNBC to go easy on the President’s economic plans/team.Even the local news is full of optimism on the economy and anecdotally I am seeing it in consumer behavior e.g. more sold signs than for sale signs in the neighborhood I live in. The video posted in the previous thread from CR on house sales in San Diego is another example.Perhaps I’ve been hanging around RGE and some of the other blogs too long – but this seems all too contrived to me. Yet I expect that before long it will be declared that the financial crisis and recession are over. In fact if I am not mistaken I think some are already saying that.It all sort of reminds me of a corporation where the CEO is a master of optics and the board and shareholders buy in to the CEO’s sleight of hand even though the fundamentals of the business are neither sound nor sustainable and the numbers imaginary (cooked).There is always a day of reckoning but the question is when.

econoprophetMay 5th, 2009 at 11:08 am

Hayes,I agree with the premise of your argument, but I don’t believe you meant it when you said that “it is now impossible to discern between what is real and what is fantasy.” After all, you seem to have the ability to recognize the difference. Obviously, it’s just becoming more difficult to do so – all of the “trusted” sources are no longer trustworthy.It reminds me of one of C.S. Lewis’ books (I can’t remember which one at the moment). There’s an evil witch who puts a prince under a spell, in which he believes her to be the most beautiful woman in the world. When he’s on the verge of being rescued, the witch begins to play word games with him, trying to lure him back into the enchanted state she has kept him in. His mind begins to give way; confusion begins to take hold, and the line between reality and fantasy begins to blur. But then, in a moment of clarity, the prince sees the witch for who she is, picks up his sword, and kills the beast.Reality is there for all to see – who has eyes to see it?

GuestMay 5th, 2009 at 8:20 am

San Francisco office space reported to be worse than the dot com bubble pop. not good for urban commercial. I think we already know about suburban commercial. DEAD ! Anyone see the tape of new homes being demolished on CNBC ? OMG, we are Spain.

MichelleMay 5th, 2009 at 1:29 pm

The U.S. has been playing this shell game for decades and everyone knows it. What makes today any different? This game will continue indefinitely and the smart money could care less which is why we will continue to see artificial growth, cooked books, and all the hocus pocus one can dare imagine. Hiding the truth is what we do best, now if I can only patent it!

MarkMay 5th, 2009 at 7:30 am

I think that this is one of the more well-rounded articles by Roubini. The only nit I have is that of this statement (speaking of PIPP):But it does promote price discovery and remove the assets from the bank’s balance sheets — necessary conditions to move forward.Yes, price discovery, that I can agree with; however, if we’re all doing this so that we can “move forward,” well, just what does That mean? This isn’t a flip or insignificant question. Before you can hope to achieve an outcome you have to DEFINE what that outcome/goal is. It’s all happy, feel-good sound bites that keep us from real discovery: how we’re going to structure our affairs such that we can live sustainably. But this will suggest the end of growth, something that capitalism was never programmed for, and, in turn, the very government itself.Mark

MarkMay 5th, 2009 at 7:31 am

I’m re-posting from the previous thread (one of my posts):All governments lie – I.F. StoneDo people demand a really just system? Well, we’ll arrange it so that they’ll be satisfied with one that’s a little less unjust … They want a revolution, and we’ll give them reforms — lots of reforms; we’ll drown them in reforms. Or rather, we’ll drown them in promises of reforms, because we’ll never give them real ones either!! – DARIO FO, Accidental Death of an AnarchistAs far as Obama goes, read this article by Chris Hedges (one of the few folks out there that I trust):Buying Brand ObamaMark

MarkMay 5th, 2009 at 7:40 am

Great article:‘Green Shoots’ Won’t Lead Economies Out of Woods: Matthew Lynn[Excerpt:]Over the next few months, you are going to hear a whole series of increasingly ridiculous and bogus signals of recovery trumpeted as if they heralded the end of the recession. All will be meaningless.Here’s a fool’s guide to four types of “green shoots,” all of which can be ignored by anyone trying to work out where the economy is going.Mark

GuestMay 5th, 2009 at 8:09 am

Nation Ready To Be Lied To About Economy Again

WASHINGTON—After nearly four months of frank, honest, and open dialogue about the failing economy, a weary U.S. populace announced this week that it is once again ready to be lied to about the current state of the financial system.Tired of hearing the grim truth about their economic future, Americans demanded that the bald-faced lies resume immediately, particularly whenever politicians feel the need to divulge another terrifying problem with Wall Street, the housing market, or any one of a hundred other ticking time bombs everyone was better off not knowing about.In addition, citizens are requesting that the phrase, “It will only get worse before it gets better,” be permanently replaced with, “Things are going great. Enjoy yourselves.””I thought I wanted a new era of transparency and accountability, but honestly, I just can’t handle it,” Ohio resident Nathan Pletcher said. “All I ever hear about now is how my retirement has been pushed back 15 years and how I won’t be able to afford my daughter’s tuition when she grows up.””From now on, just tell me the bullshit I want to hear,” Pletcher added. “Tell me my savings are okay, everybody has a job, and we’re No. 1 again. Please, just lie to my face.”The national call for decreased candor began last month, after the Department of Labor released another soul-crushing report that most Americans agreed “wasn’t helping anything” and “didn’t need to be so specific, at least.”The report estimated that 663,000 private and public sector jobs were lost in the month of March—a revealing statistic many people found shockingly blunt. Responding to the new information, an overwhelming majority of citizens said they believe that, during these extremely uncertain times, our leaders have a responsibility to come together, sit the American people down, and lie through their teeth about everything from misappropriations of taxpayer dollars to the severity of the credit crisis.”I don’t need to be constantly reminded that the lack of regulations on Wall Street compounded with failing institutions like AIG basically plunged the world economy into a global recession,” said 32-year-old office manager Alexis Harrington. “What I want is for someone to tell me with a straight face that the GDP is through the roof so that I can feel better and instantly forget what all these terms even mean.”…

(continued at http://www.theonion.com/content/news/nation_ready_to_be_lied_to_about)

noweKantMay 5th, 2009 at 7:20 pm

these people are not americans, are idiots cowards that helped get us where we now are and well deserve their fate;@guest that previously stated that “Marxism hasn’t been tried yet”: I’ve lived 35 years under a communist regime, and I hope that you won’t get to live the day when somebody will tell your children : “capitalism hasn’t been tried yet”…

MichelleMay 5th, 2009 at 7:25 pm

That’s easy for a 32-year-old to say. I hear the same rhetoric from that same age group, “the don’t worry be happy” crowd. They believe that holding stocks for “the long run” and “dollar-cost averaging” actually works. Problem is, “the long run” gets here before we know it, and the bubble may burst just as you’re getting ready to retire. Trading stocks is the flavor of the day and it won’t be changing any time soon as there’s too much money in the system being put to use on speculative behavior. Mutual funds are for suckers that believe the old school mantra still exists, and those funds are just sitting there for the taking by the speculators. What a crock.

YveMay 5th, 2009 at 9:37 pm

You know things are getting bad when the highly intelligent group of people who congregate on this blog have lost their satire radar. C’mon, it’s The Onion for Pete’s sake, quit taking everything so blinking seriously and regain what’s left of your tattered sense of humour. Yes, things are far worse that anyone probably knows, but sheesh, we all still have a roof over our heads an access to the internet (obviously). Take a break from the gloom & check out the Onion website and watch the “Money Hole” video. You will howl.

GuestMay 5th, 2009 at 8:22 am

There is a financial netherworld that few have penetrated. Until now. Rich Hartmann’s latest expose, “Where Is Superman? Is He ‘Deep Captured’?”passes into the shadows of this financial underworld of deceit and espionage–a shadowy realm not of sinister black masked bank robbers but of adeep-pocketed obscure “community of intellectuals who knew how to game the system…” It is the story of an economy robbed by financial elites in“the greatest worldwide macro economic pump and dump we have ever seen.” It is the story of the economic rape of America.It’s Hartmann (Miss America) at his finest, a writer whose credentials in settlement operations establish him as a financial sleuth par excellence.Hartmann names names, connects dots in this nefarious puzzle obfuscated by America’s failed system of checks and balances, her fallen regulators,press and politicians. He scarifies the criminals, the Hank Paulsons, and yes, the Bethany McLeans, and lauds the sleuths tracking them, theNouriel Roubinis and the Patrick Byrnes.His story is an intrigue of naked short selling, unsettled trades, corrosive packaging, evil corporations, shady offshore financiers, abuses borderingon criminality, manipulation, porn connections, media pawns, misplaced blame, and massive corruptive gain—“Blatant Crime.” It is the story of thepublic’s search for an answer, for a “Superman with a finance degree.”Don’t venture one step farther into the quick sand of modern finance and smoke and mirrors investing until you read our own Hartmann. It may saveyour financial life.http://www.rgemonitor.com/globalmacro-monitor/256591/where_is_superman__is_he_deep_capturedHere’s an excerpt:Naked Short Selling vs The US Government“One has to wonder how the entire financial community was able to deny this practice’s existence. It is comical to see the captured regulatoryagencies scurry to put in place safeguards to protect against something they swore up to 6 months ago didn’t exist.“It has gone so far that the US Treasury is set to make a massive industry change on May 1st. On the 1st the TMPG (The Treasury Market PracticesGroup) will put into affect a sizeable charge on failed deliveries of US Treasuries. Although they may deny this as their main reason for thecharge, I will be willing to stand out on a ledge and state that I believe this is a move by the treasury to essentially protect themselves againstthe naked Short Selling equivalent of US Treasuries. It is a move to protect the “quality” of the asset, because they can NOT afford to have thesesecurities subject to potential manipulations. That would rock the foundation of its status as a “flight to quality” and bring about a potentialcollapse.Sure they may say this isn’t the case, and that they are just trying to free up liquidity, but the fact is that the broker dealers know that withrates so low, it is cheaper to fail on a delivery, rather then pay the cost of borrowing the collateral for the repos they finance themselves with.(This move by the TMPG could become dangerous as they may actually cause market shortages in the long run.)“Don’t believe me??? Here are their words along with the website to check out the changes that go into effect this week:“’Market participants with large short positions should make deliveries in good faith. Market participants with a particularly large short positionin an issue should ensure that they are making a good faith attempt to borrow needed securities in order to make timely delivery of securities.Market participants should avoid the practice of “strategic fails”—that is, the practice of selling short a security in the repo market at or nearzero percent with little expectation of being able to obtain the security to make timely delivery.’”www.newyorkfed.org/tmpg.As Hartmann says, “[A] pretty amazing about face for the practice of Naked Short Selling that didn’t exist just six months ago!!!”Where is Superman? Let Rich tell you.SondraAnd kudos to Dr. Roubini for breaking the new financial ground these past few years that already bears the fruit of these new writers, theHartmanns and the London Bankers.

GuestMay 5th, 2009 at 4:56 pm

A “community of intellectuals who knew how to game the system…”You call these people intellectuals? What have they read or written? Swindlers of every stripe are now called intellectuals. Your choice of words betray your admiration for these pissants.

GuestMay 5th, 2009 at 6:50 pm

With all due respect, it’s the pot calling the kettle black. What’s the name of your PR agency Sondra?

ptmMay 5th, 2009 at 9:01 am

Big Jake over at Seeking Alpha is beating RGE in Doom & Gloom!1) The S&P 500 will sink below 500.2) Government to get into the stock market in order to bid up prices. (Big Jake needs to learn about the PPT and Goldman Sachs.)3) State and local welfare services will be overwhelmed, and by 2012 will have largely collapsed and ceased to function in many parts of the country. Thousands will starve or freeze to death in their own homes.4) Government issuing Red dollars for some greater number of “old” dollars. Every country that has not found a way out of dollar-denominated reserve assets by 2012 will see its reserves eliminated.5) By late 2010, the sole buyers of new U.S. Treasury and agency bonds will be the Federal Reserve and a few derelict financial institutions under government control.6) Government’s broader unemployment figure (U6) will cease to be reported when it reaches 25 percent—it will simply be too embarrassing.7) Police and other local government workers will turn to wholesale corruption in order to survive.8) Thousands of enclosed malls, strip malls, unfinished residential developments, motels, truck stops, distribution centers, middle-of-nowhere resorts and casinos, and small-city airports across America will turn into dilapidated, unwanted, and dangerous ghost towns.9) By the end of 2010 a general bank run will only be averted through a roughly one trillion-dollar recapitalization of the FDIC, courtesy of new money from the Federal Reserve.10) President Obama will be blamed for it and be a one-term president.11) Property crime will explode. Desertions will proliferate in an increasingly demoralized, over-stretched military.12) A huge backlash against Federal and state bureaucrats who demand three-percent annual pay raises while private sector wages remain frozen or worse.13) If all of this goes, so could everything else. We were lucky in the 1930s—we may not be so lucky again.http://seekingalpha.com/article/134820-the-worst-case-scenario-someone-has-to-say-it?source=hp_mostpopular

GuestMay 5th, 2009 at 9:41 am

Illinois State Police Seize and Keep Desirable Cars for Personal UseInfluential Illinois State Police official gets personal use of a muscle car confiscated from a motorist.Dodge ChargerIllinois State Police troopers seized a high-performance muscle car and set it aside for the personal use of an influential police official. The Associated Press reported that a suspected drunk driver in a 2006 Dodge Charger was pulled over in January 2007. The troopers used a state seizure law to confiscate the vehicle.Once the paperwork was complete, the 425-horsepower vehicle — which had an as-new base price of $38,000 — was handed over for the personal use of Ron Cooley, 56, the Executive Director of the Illinois State Police Merit Board. Taxpayers also pick up the fuel tab for gas-guzzling 6.1 liter V-8 as he drives to and from work each day and on various business trips.A good relationship with the merit board is essential for any state trooper looking to move up into a position of responsibility.”The mission of the Illinois State Police Merit Board is to remove political influence and provide a fair and equitable merit process for the selection of Illinois State trooper candidates and the promotion and discipline of Illinois State Police officers,” the board website explains.According to AP, the Charger is just one of two dozen desirable cars — including an Audi and a Cadillac Escalade — grabbed and kept by state troopers. State police officials decline to identify the beneficiaries of the confiscated car policy claiming it could endanger officers if the type of car they drove at taxpayer expense were made public.http://www.thenewspaper.com/news/27/2767.asp

GuestMay 6th, 2009 at 9:12 am

Texas police shake down driversPolice said he was driving 37 mph in a 35 mph zone. They hauled him off to jail and threatened him with money-laundering charges — but offered to release him if he signed papers forfeiting his property.Jennifer Boatright and Ron Henderson said they agreed to forfeit their property after Russell threatened to have their children taken away.Maryland resident Amanee Busbee said she also was threatened with losing custody of her child after being stopped in Tenaha with her fiancé and his business partner. They were headed to Houston with $50,000 to complete the purchase of a restaurant.One check for $10,000 went to Barry Washington, a Tenaha police officer whose name has come up in several complaints by stopped motorists. The money was paid for “investigative costs,” the records state.http://www.cnn.com/2009/CRIME/05/05/texas.police.seizures/index.html?iref=mpstoryview

MM CAMay 5th, 2009 at 11:16 am

NO JOBS- he is dead on with the U6 prediction- we are approaching 20% U6 presently. as for the rest some wil lbe true, some won’t but it will be 5-10 years of pain and little or no recovery. Resetting an entire ecconomy will take a long time. Peoples expectations and understanding of what is going is just starting to adjust.

PeteCAMay 5th, 2009 at 9:04 am

Deflation – Are Our Dollars Really Buying More Stuff?There is no doubt about the huge asset deflation that has hit Americans over the last year or two. The collapse in prices of stocks and houses has sucked enormous wealth from Americans. But what about deflation? What is going on?A quick look at the curve for the consumer price index (CPI) can be found at the following link:Inflation Curves from Shadow StatsWhether you accept the curve from economist John Williams (blue line), or the published Governmnet data (line for CPI-U), it looks like the CPI has fallen by about 5-6 percentage points over the time period from 2008 to current. That drop is roughly comparable to the drop in the CPI that occurred during the time of the 1929-1931 Depression. If that’s so, then surely our dollars must be able to buy more goods? If costs are declining in a major way, then the purchasing power of dollars must be going up – something that would benefit Americans. A situation of deflation.Yet if you are like me, you must find this statement a little hard to believe. It sure doesn’t seem like a lot of costs have really come down in America. Each time I buy food at the supermarket, things seem to be going up. Not down. Household budgets are strained – things are NOT getting easier. So what gives???Well, a little digging into all the CPI data shows that the apparent mammoth decrease in inflation was caused by huge declines in just two quantities: transportation and energy. I spent some time digging through all the old BLS reports just to take a look at what exactly happened. And if you trace back to the root cause of the drop in the CPI index, eventually all you have to do is look at the chart for oil prices. Try looking at $WTIC on http://www.stockcharts.com, plotted over a three year period. That huge decline in oil prices from $150/BL down to $40/BL explains the enormous decrease in the CPI figures. Costs for energy and transportation plummeted.So that’s why the cost of living doesn’t seem to have decreased really – as much as the CPI figures say. Household data show that the average American family only spends something like 6-10% of their budget on energy (going on memory from figures shown by the Contrary Investor). While it’s helpful that the price of gasoline has decreased, it doesn’t assist the budgets of Americans THAT much. If you dig into the behavior of other items that are compiled in the CPI calculations, in fact you discover that food has been going up in price. Just as a lot of us have been finding out when we go to the supermarket. And a lot of other items have either stayed the same, or increased slightly.So the so-called “deflation” that affects the purchasing power of dollars has in fact been extremely selective in the way that it works. With most Americans now struggling to pay off debts on credit cards, auto’s, and mortgages – frankly the overhang from the huge consumer debts more than outweighs any savings from cheaper gasoline or natural gas.Asset deflation has been a killer for American investors and home owners. But apparent improvements in purchasing power due to deflation in the CPI index have not been helping families all that much – in comparison to the other costs they are struggling with.PeteCA

GloomyMay 5th, 2009 at 12:44 pm

Yeah, I keep waiting for my monthly expenses to drop, but fogettaboutit, it ain’t happening. Also, as the economy “recovers”, notice how oil prices are rising? The more they goose up the recovery story the more commodity prices rise. What goes around comes around.

devils advocateMay 5th, 2009 at 6:43 pm

Pete, the IMF is rapidly and hugely expanding the SDRs in exchange for US dollars. How will this affect the US dollar? Countries holding tons of US dollars can lend/donate them to the IMF…which can then make loans (in US dollars-?) to Emerging Countries…———————————I have a plan to create the New Economy:pay people to spend$100,000 spent earns you $100,000spend only $50,000 and you earn only $50,000like a minimum wagecalled The Minimum Spend or Yes We Can (spend)

BobMay 5th, 2009 at 9:06 am

please, please read this guy’s article… It lays out exactly how we have been robbed and raped… The mainstream news agencies will not allow this stuff to come out so we have to do it over the internet.. http://financialsense.com/editorials/quinn/2009/0504.htmlIF YOU BELIEVE – BANKS ARE RECOVERINGby James QuinnMay 4, 2009 His Conclusion:Goofing on Elvis, Are We Losing Touch? The stock market has been soaring as banks report fraudulent earnings. These banks are purposely underestimating future losses to make current earnings appear better than they really are. Hank Paulson and Ben Bernanke demanded that Ken Lewis commit fraud by not revealing material information to the public about Merrill Lynch. Why are they not being prosecuted? Bankers protect the members of their bankers club. Dr. John Hussman describes how it works in today’s world: “That’s what these bureaucrats want during their stint in government service, that’s how they advise our elected officials, and then their revolving door takes them right back to Wall Street. This thing is run by investment bankers and corporate bondholders for the benefit of investment bankers and corporate bondholders.” The government is desperately attempting to convince the world that the banking system is sound and recovery is under way. The actions they have taken have not and will not fix the system. The waves have washed away the foundations of sand propping up the U.S. financial system. Instead of learning from their mistakes, officials have decided to rebuild on a new foundation of sand. We are borrowing from foreigners to bailout bankers and handing the bill to future generations. With government dictating the future of our banking system we can count on massive fraud, waste and mismanagement. Dr. Hussman’s frustration is well founded: “It’s frustrating, but we are wasting trillions of dollars that could bring enormous relief of suffering, knowledge, productivity, and innovation in order to defend bondholders of mismanaged financials, and nobody cares because hey, at least the stock market is rallying. If one thing is clear from the last decade, it is that investors have no concern about the ultimate cost of the wreckage as long as they can get a rally going over the short run.” This public relations effort will fail. There are hundreds of billions of losses left to be recorded by our big bad banks. If you believe this is almost over, you are not paying attention. © 2009 James QuinnEditorial ArchivesBio: James Quinn is a senior director of strategic planning for a major university. These articles reflect the personal views of James Quinn. They do not necessarily represent the views of his employer and are not sponsored or endorsed by his employer. He can be reached at quinnadvisors@comcast.net. Contact InformationJames Quinn(215) 573-5404 Phone | Email | Websitesdrazi 9:22 AM

Average JaneMay 5th, 2009 at 1:49 pm

Mr. Quinn, as Hayes (our resident virtual vacuum cleaner of information) notes, has written several excellent articles. I highly recommend reading him.And John Hussman has certainly come forth with some blistering commentary as well. I respect his judgment and have watched his posts on his site grow more and more frustrated in tone in recent weeks, bless his heart.

GuestMay 5th, 2009 at 5:52 pm

As a transplanted Yankee, I always found the southern idiom “bless his heart” curious. The best translation I can come up with is “that poor dumb son-of-a-bitch.”

GuestMay 5th, 2009 at 9:11 am

BTW, go to house.gov, whitehouse.gov, and senate.gov and raise hell about this… they actually have congressmen and women coming on CNBC (bubblevision) saying “all is well.” I can’t believe their chutzpah…

HayesMay 5th, 2009 at 9:28 am

suggestion – don’t watch CNBC – Bloomberg is a far better (though far from perfect) source for your business news fix.

economicminorMay 5th, 2009 at 9:11 am

This is a chart of disposable incomes…. Which show what happens when your standard of living is supported with increasing debt.As the debt goes up the ability to maintain your standards is supported by borrowing more and more until you can no longer service it all, see chart, and your standard of living crashes…. Which is happening to many in this country.But rather than just let this happen to people and business who were foolish, the government is doing the same thing that people did.Ask yourself, What is the difference between consumer debt and government debt? … And throw in a few factors like lowering DPI. Which is decreasing tax revenues and adding to job losses, which is all leading to more defaults and foreclosures, which is driving deflation.My conclusion is that what the Obama Administration is doing is nothing different than what the consumer did since 1980 EXCEPT >During the period from 1980 till 2006, inflation was a positive force in ameliorating the effects of debt on consumers. Today consumer asset deflation is the predominant force. Which makes all attempts at reflation futile! In the end, the government debt and income charts will look similar to the consumer charts.Because inflation will not benefit the consumer this time, it will end up costing the consumer like it did in the late 1970’s and will be a major negative force, accelerating consumer asset deflation….So the efforts of the Obama Administration are doing exactly the opposite of what they want…You say why would they do this? I say, Why did the American public and banking institution backed by Congress do the 1980 > 2006 stupidity?I say it was part of a natural cycle. As Minsky and Fisher documented in their studies, Stability leads to Instability. When things are easy, people ignore risk until risk overwhelms the system and the system crashes. Debts are deleveraged and written off. Then debt revulsion becomes the norm… which leads to people making a little money with little risk and pretty soon, some make more money with more risk/leverage and the upward inflationary cycle starts again until ignored risk again overwhelms the system and …..We are at a point where ignored risk is overwhelming the system but denial and the desire to ameliorate the consequences causes government to ignore their risk and push the system harder. From charts I have recently seen and discussion of debt, even though consumers are deleveraging debts, overall debt continues to rise.. Which means we haven’t yet reached the peak of this cycle.http://globaleconomicanalysis.blogspot.com/2009/05/wages-contract-in-us-uk-japan.html

PeteCAMay 5th, 2009 at 10:29 am

RE: Chart of disposables incomes.So 1980 was the peak year … the Big Cheese … the major domo for disposable incomes?!?! But I was just a young guy in college then. If ONLY someone had explained the facts to me. I had it good – and I didn’t even know it. :-)You know what would be interesting. To envision the same chart for disposable incomes in China … only projected into the future.PeteCA

economicminorMay 5th, 2009 at 11:09 am

I have no faith that China will grow like imagined. It is a Corporate State where the majority of the workers are abused. Sure there is a growing middle class but they are mostly part of the party/corporation state. Freedom there is not the same as freedom here. To many people, to little land, to congested and polluted.Westerners think in western terms and the Chinese don’t think like us. They never have and probably never will as a whole. They have a different cultural history than the West, especially the US with room to expand and lots of resources.You might be right but I just don’t think the chart would be similar. I think their experience will be more like South America and Russia and where we are heading, where a small group controls the resources and the majority are economic slaves.Which is the real history of civilization for the most part, not the American experience.

Brett in ManhattanMay 5th, 2009 at 11:50 am

Consider the sense of entitlement of the median American woman to that of her Chinese counterpart. With that in mind, do you really think the Chinese are gonna start consuming like Americans?

PeteCAMay 5th, 2009 at 12:15 pm

Good point. We need to start adding “Sense of Entitlement” as an additive to breakfast cereals – and sell it to China :-)Hey – we’re not going to need it any more!PeteCA

noweKantMay 5th, 2009 at 7:55 pm

no it can’t be ruled out, but not in the next 100 years, or so….just check out the SE European “democracies” for compelling stories of “free elections for brain washed people”, state banditism, cronyism and endemic corruption, and yet we are talking about European countries, that all had a democratic history before WWII;you people born in “freedom” really CANNOT understand what a totalitarist regime is and what it can do to people…no “material” trauma, like the one we are all about to suffer, can compare to physical and psychological torture inflicted by these criminal communist regimes to maintain theoir status quo

MarkMay 6th, 2009 at 6:14 am

Hmm… interesting, interesting that the graph line looks like the roof line of a house :-)The phrase for the future: Down and to the right.Mark

HayesMay 5th, 2009 at 9:43 am

Further to my post above on the some declaring the recession is over there is this from The Onion -I mean from ForbesThe Recession Is OverForbes May 5, 2009…Now it looks like our V-shaped recovery is underway. When the NBER eventually gets around to declaring the recession end date, we think it will be May 2009…”link this article in Forbes

HayesMay 5th, 2009 at 10:01 am

First Trust Advisors article January 22, 2008 (the same folks who are calling the recession over)by Brian WesburyDow 15,000…”With the economy picking up steam in 2008, our forecast is that the Dow moves up as well and our year-end 2008 forecast is 15,000, with S&P 500 at 1625.Once recession fears frove unfounded, US equities will soar. Those who maintain their appetite for risk will be richly rewarded sooner than they think.”

Brett in ManhattanMay 5th, 2009 at 11:43 am

This reminds me of the Seinfeld episode in which George gets fired but comes back to work the next day as though it never happened.

GuestMay 5th, 2009 at 10:10 am

Great points, but why would you not want the banks to cherry pick. Since they are in such poor shape, as you argue, I would think the government would want to encourage them to buy up AAA tranche mortgage paper because that is likely to put them back on the path of making huge profits sooner. If they invest in milquetoast securities, then their problems will be dragged out. I assume that a priority we all have is making the banks really solvent once again, or maybe I am wrong.

PeteCAMay 5th, 2009 at 10:10 am

Isn’t it funny how the whole panic about the swine ‘flu is suddenly over … just in time for Cinco de Mayo. Well, I guess they’ve got their priorities straight.Where did that Corona go, anyway? :-)PeteCA

HayesMay 5th, 2009 at 10:31 am

It will likely be back this Fall – and far more virulent – ironically because of all of the media panic and hype this time around no one will believe it when the real pandemicflu hits in September, which will exacerbate its spread and heighten the mortality rate.Its behavior is similar to the 1918 Spanish flu – here is an animated map of the spread of the 1918 fluhttp://www.pbs.org/wgbh/amex/influenza/maps/index.html

PeteCAMay 5th, 2009 at 11:33 am

Hayes: You remember that video that was discussed on the blog. The one from the guy who had a PhD in virology? Well, he said in a month that the entire map of the USA would be covered in cases of swine ‘flu. And sure enough, a couple of weeks after he said that … we’ve got outbreaks in over 30 states. He was pretty much bang on. I do agree with you. We’ll see this stuff come back to us in the Fall. Sure hope it doesn’t come back with a vengeance!PeteCA

GuestMay 5th, 2009 at 11:42 am

Anyone that has had a recent experience with our current hospital/health care system has to wonder How it could possibly survive a pandemic. Care now is restricted due insufficient staffing. What is it going to be like during a pandemic?

AnonymousMay 5th, 2009 at 10:52 am

“True, the program [PPIP] offers cheap financing and free leverage to institutional investors, which will lead to the investors overpaying for the assets. But it does promote price discovery and remove the assets from the bank’s balance sheets — necessary conditions to move forward.”The institutional investors Roubini mentions here are probably the public employee pension funds that Wilbur Ross said will be used to remove the toxic assets from the banking system. From the context of Roubini’s article, it appears that he supports the proposal of leading the institutional investors to pay more than the assets’ market value, thus sacrificing pension fund money to help make the banks whole. It probably can be done with relative ease since public employee pension funds are subject to political influence.

HayesMay 5th, 2009 at 11:04 am

Another important post over at ZHOf Fingers And DikesIn a encyclopedic post, Brian Pretti of Contraryinvestor.com has done an amazing job of integrating the various facets of the “Green Shoots” we are currently hearing about all over the MSM, which absent the constant intervention by the Fed to facilitate “unfreezing” of credit markets, the Shoots will become Venus Fly Traps soon enough. The take home message, and a point Zero Hedge has written about in the past, is that absent the Fed propping the credit market day after day, the entire system is on the verge of systemic collapse. The problem is that despite what Bernanke is saying right now that he doesn’t view government stakes in banks as long-term propositions, there is really no way to extricate the government without suffering the kinds of economic tremors on par with the Lehman collapse. As such it is likely we will be seeing the Fed take an ever increasing role in all aspects of the market for many years.A must read, and I hope Brian will not take offense with reposting his insight in its entirety.http://zerohedge.blogspot.com/2009/05/of-fingers-and-dikes.html

MM CAMay 5th, 2009 at 11:22 am

NO JOBS!Great Recession’ Will Redefine Full Employment as Jobs VanishShare | Email | Print | A A ABy Matthew Benjamin and Rich MillerMay 4 (Bloomberg) — Post-recession America may be saddled with high unemployment even after good times finally return.Hundreds of thousands of jobs have vanished forever in industries such as auto manufacturing and financial services. Millions of people who were fired or laid off will find it harder to get hired again and for years may have to accept lower earnings than they enjoyed before the slump.This restructuring — in what former Federal Reserve Chairman Paul Volcker calls “the Great Recession” — is causing some economists to reconsider what might be the “natural” rate of unemployment: a level that neither accelerates nor decelerates inflation. This state of equilibrium is often described as “full” employment.Fallout from the recession implies a “markedly higher” natural rate of unemployment, says Edmund Phelps, a professor at Columbia University in New York and winner of the 2006 Nobel Prize in economics. “It was 5.5 percent; maybe it will be 6.5 percent, maybe 7 percent.”That has implications for policy makers as well as workers. The Obama administration and the Federal Reserve are counting on the jobless rate to fall to a medium-term equilibrium of about 5 percent as the economy recovers. A natural rate significantly above that would drive up the annual budget deficit — which will top $1 trillion for the first time this year — by reducing tax revenue and pushing up spending on unemployment benefits.A higher rate would also require the Fed to make a choice: Accept an economy with more Americans permanently out of work, or try to boost employment at the risk of heating up inflation.Unemployment ReportThe government may report May 8 that the jobless rate jumped to 8.9 percent in April, the highest since 1983, from 8.5 percent in March, according to economists surveyed by Bloomberg.Laurence Ball, an economics professor at Johns Hopkins University in Baltimore, says unemployment may peak at 10 percent, and “it will be a long time before we see 5 percent” again.The more time workers spend without a job, the less attractive they become to potential employers, Ball says. That in itself helps keep the unemployment rate elevated.“If you’re unemployed” for an extended period, “you’re not keeping up with new technology,” he says. “You become discouraged and you change your lifestyle.”A burst of productivity growth starting in the mid 1990s helped lower the natural rate of unemployment to around 5 percent from 6 percent, as profit-flush companies took on more workers. Now the fear is that will be reversed as industries downsize.Permanent LayoffsAlready, almost a quarter of the unemployed have been out of work for 27 weeks or longer, the highest proportion since 1983. Permanent layoffs — for workers who don’t expect to ever regain the same job — hit a record 51.5 percent in March. Mass layoffs, those that affect 50 or more people, rose to a record 2,933, comprising almost 300,000 lost positions.“We’re shedding jobs in industries in a significant way, and we’re not going to see those same industries be the source of job creation,” Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York, said in an April 21 interview. “We’re going to be living in a world in which we’re going to be feeling that the normal on the unemployment rate is above 6 percent.”About 27 percent of automotive-manufacturing jobs –roughly 257,000 — have been cut during the recession as carmakers trimmed operations.GM Job CutsGeneral Motors Corp., the largest U.S. automaker, has set a target of reducing 47,000 positions worldwide this year. The company also aims to eliminate about 2,600 of its 6,200 U.S. dealerships by 2010, a move the National Automobile Dealers Association estimates will cost as many as 137,000 jobs. GM wants to sell or eliminate its Pontiac, Saturn, Hummer and Saab brands.Chrysler LLC filed for bankruptcy protection on April 30 to streamline its operations in a reorganization that includes Italy’s Fiat SpA as a partner. Since being spun off from Germany’s Daimler AG in August 2007, Chrysler has fired about 32,000 workers.Half of the auto-industry jobs being cut “are gone for good,” says Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Michigan. He predicts that older displaced workers will retire, while younger ones will migrate to industries such as health care where wages are lower. “Autoworkers don’t readjust well,” McAlinden says.Financial ServicesEmployment in the financial sector — which has seen the demise of investment banks Bear Stearns Cos. and Lehman Brothers Holdings Inc. — has contracted by 4.5 percent, or 376,000, with more losses to come.Zurich-based UBS AG, the biggest Swiss bank, last week confirmed plans to cut 2,000 positions in its U.S. wealth- management unit.“Some sectors of the economy seem to have clearly gotten well overbuilt,” says Orley Ashenfelter, an economist at Princeton University in New Jersey and former Labor Department official. “Financial services is an extreme example.”In the publishing industry, which is suffering from falling advertising and a migration of readers to the Internet, employment is down almost 8 percent since the recession began in December 2007, according to the Bureau of Labor Statistics.Daily average circulation for 395 newspapers fell 7.1 percent to 34.4 million in the six-month period through March, the Audit Bureau of Circulations said last week. Five publishers — including Tribune Co., parent company of the Los Angeles Times and Chicago Tribune — sought bankruptcy protection, and printed versions of the Seattle Post-Intelligencer and Denver’s Rocky Mountain News were halted. New York Times Co. has threatened to close the Boston Globe, which was founded in 1872.‘Considerably Lower Pay’“Most of the publishing job cuts we’ve seen are probably going to be permanent,” says John Morton, a media-industry analyst and president of Morton Research Inc. in Silver Spring, Maryland. Workers displaced from large metropolitan dailies will wind up at community papers and other places “with considerably lower pay than they’re used to,” he says.Layoffs now taking place are similar to those in the 1981- 1982 recession, when unemployment peaked at 10.8 percent and 2.8 million jobs disappeared, leaving industries such as durable-goods manufacturing permanently smaller. Some 14 percent of durable-goods positions vanished in that slump, and the sector never regained the employment level of June 1981.Earnings HitPeople who lost stable work in the early 1980s sustained large and long-lasting earnings reductions, according to research by economists Till von Wachter of Columbia University, Jae Song of the Social Security Administration and Joyce Manchester of the Congressional Budget Office. A typical 40- year-old man who became unemployed at the time went on to suffer a 20 percent loss in lifetime earnings, they found.The income hit is all the greater when displaced workers have to start over in new careers because their old employers were in sectors that have shrunk.“People losing their jobs now in permanently downsizing industries have to be aware that they’re particularly at risk of pretty large losses” to lifetime wages, says von Wachter, who briefed staff at the Fed and the European Central Bank last month on the effects of mass layoffs.“People tend to think that when you come out of a recession you get the labor market you had when you entered it,” says Lawrence Mishel, president of the Economic Policy Institute in Washington. “This time you may get something quite different.”

paul94611May 5th, 2009 at 11:29 am

One thing is certain, this administration just like the previous one will never take an action with respect to the major financial institutions that the institutions in question did not approve of first. Fact of life.And expecting, hoping or dreaming that the central government of the US will ever take action to place one or more of these institutions into any form of receivership is a pipe dream. The central government and the federal reserve will bankrupt the treasury and drive our currency and bonds to junk before they ever take action that the financial oligarchs object to. One more fact of life.Nouriel, please return from your trip of chasing the dragon and realize that your associates, to whom you display a great deal of loyalty will never comport themselves in their public roles in a manner worthy of that trust. They will never take action to “resolve” the TBTF institutions because they believe that the situation is resolved. All that is needed according to our financial leadership is sufficient taxpayer supplied funding to reinflate the debt fueled economy of yesteryear.If the situation should ever fail we will be assaulted with media reports that the administration lacked the will to do what was necessary to defend the nation and our financial system by refusing to take forceful action when it could have made a difference. Your associates are being set up to take the fall since many folks will believe that the current administration will have ownership of events when the collapse does come.

PeteCAMay 5th, 2009 at 11:45 am

Now Forbes is attacking California. I knew this was coming. I mean, Hey – was it our fault that we spent our hard-earned home equity payouts on yoghurt, plastic surgery and Harley Davidson’s? Sheesh. What are the rest of you folks thinkin’???Don’tBail Out CaliforniaWhere did I put my cheap sunglasses? I gotta’ tune this stuff out! :-)PeteCA

MM CAMay 5th, 2009 at 2:45 pm

i tend to agree with this… if they bail Calif. they will open the flood gates to approx 350B to 500B of total state and local budget problems… the problem is everything outside of Washington will collapse… Washington can only deal with one fiscal mess at time it seems and the line forms to left and this is just another problem in the long list…People need to realize we are Bankrupt as an economy and country… it will take many years of sacrafice and saving to dig out of this… State and local budgets, Underfunded pensions, corrupt banks that are insolvent, rising unemployment and NO JOBS, the lsit is long, very long…

Ken CMay 5th, 2009 at 11:51 am

It’s not true that they need to change the laws to resolve a bank holding company. WaMu was a bank holding company and the debt holders got wiped out. But after WaMu, the bondholders complained and Treasury (Paulson) told them that it would no longer require haircuts from bondholders.There just isn’t any political will to put the banks into receivership. The banks are too politically powerful.

FEDupMay 5th, 2009 at 12:02 pm

Congratulations to past CEO George Bush and present CEO Barrack Obama along with CFO’s Paulson and Bernanke for ending the recession for the corporate elites by rewarding them with billions of dollars for causing the worst financial crisis since the GD. Now they want the rest of us who haven’t lost our home, our credit or our job to start buying everything we can and throw whatever money we have left back into the Wall Street casino to keep the party going until Goldman and others decide to turn off the lights and send everyone home broke. Happy Cinco de Mayo!

subgeniusMay 5th, 2009 at 12:28 pm

Capitalism in WonderlandRichard York, Brett Clark, and John Bellamy Foster for Monthly Review…Economists in WonderlandThe inherent incapacity of orthodox or neoclassical economics to take ecological and social costs into account was perhaps best exemplified in the United States by the work of Julian Simon. In articles and exchanges in Science and Social Science Quarterly and in his book The Ultimate Resource published at the beginning of the 1980s, he insisted that there were no serious environmental problems, that there were no environmental constraints on economic or population growth, and that there would never be long-term resource shortages. For example, he infamously claimed that copper (an element) could be made from other metals and that only the mass of the universe, not that of the earth, put a theoretical limit on how much copper could be produced. The free market if left unfettered, he contended, would ensure continuous progress into the distant future. These and other dubious assertions led ecologist Paul Ehrlich to refer to Simon as “an economist in Wonderland.”…Economists versus Natural ScientistsNeedless to say, establishment economists, virtually by definition, tend to be environmental skeptics. Yet they have an outsized influence on climate policy as representatives of the dominant end of capitalist society, before which all other ends are subordinated. (Social scientists other than economists either side with the latter in accepting accumulation as the appropriate goal of society or are largely excluded from the debate.) In sharp contrast, natural and physical scientists are increasingly concerned about the degradation of the planetary environment, but have less direct influence on social policy responses.Mainstream economists are trained in the promotion of private profits as the singular “bottom line” of society, even at the expense of larger issues of human welfare and the environment. The market rules over all, even nature. For Milton Freedom the environment was not a problem since the answer was simple and straightforward. As he put it: “ecological values can find their natural space in the market, like any other consumer demand.”

HubbsMay 5th, 2009 at 1:12 pm

Water Cooler TalkWhen asked my thoughts about the economy and stocks:Running out of room to hide. Will sell my short term treasuries soon, most retirement already in money market treasuries since Oct 2007–what to do if the inflation dragon appears? I don’t know.If I had any stocks…sell now..insiders selling, Fed and its Proxies- AIG, GS etc make moves too unpredictable and unbelievable. Look at the stress test…what a bunch of BS. The results have been so gerrymandered it is impossible to draw any conclusions…just the way the FEDS and Banksters want it.Bernanke jawboning that the recovery may start at end of this year. Define “Recovery”.Recovery limited to lack of productive jobs—we all(except the Banksters) will have to actually work for our money, instead of getting it through investment “returns.”Past recoveries based on availability of plenty of resources, cheap transportation, less world wide competition.Said I would go “all in” stock market if S&P tanked to 300, 1/2 in if it went to 450, trickle in if it went below 600.It will be interesting to check up on this in 2-3 years from now.

wethepeopleMay 5th, 2009 at 1:19 pm

GREENBACKS FOR THE GREEN ECONOMY: Imagine not having to pay interest to private bankers in order to create our legal tender to pay for national priority public projects. We should not have to go into debt to private bankers to fund the redevelopment and new development in infrastructure this nation needs. Our government has the original constitutional authority to issue its own legal tender, INTEREST FREE!!!, to fund these projects to promote our national interests in economic recovery and employment. Indeed, it would be detrimental to our national interest to incur further debt and pay interest for generations to private bankers to achieve these critical infrastructure goals. The true American System has a preferred legal tender without interest paid to private bankers. If the People choose voluntarily to pay interest on its legal tender, it should be paid to ourselves via a truly National Bank of the United States, fully owned by the People, for the People, and of the People. The inflationary arguments against the greenback are bogus! History shows that debtor countries can pay off debts and prosper rapidly using this system. Install the American System as a parallel monetary system to compete with the current British System and see which is more viable. The opportunity costs of our interest payments under the current system are staggering, and will penalize education, health, science innovation for decades. We cannot afford the status quo, we cannot afford to do nothing.

HayesMay 5th, 2009 at 8:05 pm

on the topic of currencyA licence to print moneyPapermaker for currency thrives under easingJohn Greenwood, Financial Post Published: Tuesday, May 05, 2009Most people scratch their heads in bewilderment when they hear that the government has just pumped out a fresh batch of bank notes into the economy as part of a “quantitative easing” strategy.But Chad Wasilenkoff just smiles because as far as he’s concerned, the more quantitative easing, the better…http://www.financialpost.com/story.html?id=1563182

subgeniusMay 5th, 2009 at 2:07 pm

Yeah, they’re a threat – what with their 10s(?) of low yield devices. Their combined devastation would probably trash the planet about as much as 1 day of LA’s existence…

GuestMay 5th, 2009 at 2:44 pm

Yes, but a couple of these set off in New York or London sure would have an impact.

GuestMay 5th, 2009 at 3:17 pm

MINGORA, Pakistan – Black-turbaned militants roamed city streets and seized buildings in a northwestern Pakistan valley Tuesday as thousands of people fled fighting between the Taliban and troops that the government said could lead to an exodus of half a million people. The Taliban declared the end of their peace deal with the government

CahillMay 5th, 2009 at 4:12 pm

The real danger comes when they seize control and decide to restart hostilities with India, where does it end? Do the two nations come to nuclear blows? At that point we’ll be pulled into the conflice which means North Korea will be defensive of heightened activity in that hemisphere, and will mean China has to get involved. This goes way beyond terrorist use of Nukes, even though that would be more than bad enough.

FAMCMay 5th, 2009 at 2:17 pm

Katz:”When most of the people get richer, they call this a recession/depression. When most of the people get poorer, they call this a boom.”” On March 9, 1933, F.D.R. (left-wing) gave the bankers (right-wing) the privilege to create money out of nothing (i.e., legalized counterfeiting). The bankers made a lot of money out of this privilege. So the bankers needed some economic “experts” to tell the public that, when the bankers created money, it was good for everyone, that the bankers weren’t creating money for their own selfish gain. They were “stimulating the economy.”Strange it was that before the Fed was created, when the bankers’ privilege to create money was very limited, that the economy of America was the greatest in the world. At this time, the average American working man increased his real wages by 60% every 30 years. (Over the past 30 years, the average American working man did not increase his real wages at all.) At any rate, the bankers needed this message taught in American universities. So they bribed the top schools (like Harvard) and got these banker-economists appointed to teach economics all over the country. To maintain their cover, these economists went out of their way to criticize the banks and call them bad names. The bankers didn’t mind…so long as the economists provided the intellectual cover for the government policies which put money in their pockets. So the left-wing economists stole wealth from the American people and gave it to the right-wing bankers. And everyone was happy.Yes, the bankers were happy because they were rich. And the economists were happy because they had prestige. And the working people were happy because all of their authority figures told them that they were getting richer…even though they were getting poorer. The name for this system was “The New Math.”

MarkMay 6th, 2009 at 8:24 am

We’re comparing totally dissimilar eras. In no way am I trying to absolve the Fed, but the economic power of the US was always going to eventually falter (running out of resources will do that to ANY economy).The US gained its upper-hand because it became the number one oil exporter in the world. This and Britain losing its throne catapulted the US.By about 1970 the writing was on the wall. The US’s oil production peaked, and from that point forward its future pattern of increasing trade deficits was certain.The Fed and the banks super-charged growth. They didn’t cause this mess, they only expedited it.Mark

GuestMay 5th, 2009 at 2:55 pm

My RealityThe Fed’s balance sheet is not only massive, it is a mess with credit risk.Mr PracticalMay 05, 2009 2:45 pmAs more and more traders and investors view the recent rally through the eyes of technicals, we are closing in on the completion of the bear trap. Human beings are inductive: they see things and their preexisting views are reinforced by them. Rising prices beget rising prices until facts finally exact their toll. People assume others know what they’re doing.I came out of the airport terminal to grab a cab one night. The line was two hours long. The last person in line assumed the person in front of them knew what they were doing and resigned their fate with the rest. I decided to take a five minute walk to the next terminal, where I grabbed a cab immediately.If people really did hard analysis on the current environment they would take a much different view. The Fed’s balance sheet is not only irreparably massive, it is a mess with credit risk. When you hear people saying credit is improving, it can clearly be shown that the only areas of improvement are where the Fed has stepped in and become the market. The Fed has reduced transparency, not increased it.Take any category where credit has improved and you will see that the Fed has taken and retains massive positions: Bank Credit Reserves increased over last year by $1.3 trillion, Agency Securities $70 billion, Mortgage Backed Securities $356 billion, Term Credit (LIBOR, the real headliner) $456 billion, Commercial Paper $238 billion (this market has shrunk dramatically so the Fed is basically the whole market), SWAPS (inter-dealer lending) $256 billion, and credit to AIG (AIG) $45 billion. These are the holes the Fed has stuck its finger in. If the Fed takes the finger out, the damn will bust.Debt issued by the government is soaring while debt issued by corporations is crashing. Notice that this is the one hole that is probably too big for the Fed to stick its finger in to plug. Corporations, due to lower cash flows, cannot issue debt at high Baa rates (the highest since the early 1990s) because the cost of capital is too high.This is why equity issuance, which lowers liquidity is soaring, while fixed income issuance is non-existent. Convertible bonds are a source of funds because the dilution necessary lowers the cost of capital; $600 billion of corporate debt has to be rolled over the next 15 months.The point is that the Fed and the government have been able to shift psychology, convince people that things are “stabilizing”, but they have done so at a high cost. The risk has increased dramatically. Who knows where the rally stops, if it does? But the marginal buyer is taking higher and higher risk. The economy and the markets are a physical system, which hasn’t changed for the better. Sure, you can get a low rate mortgage now but you better be able to put 20% down. That is reality.Maybe the Fed never takes their fingers out of the dike and just destroys the currency; a likely scenario. But then your stocks will go up but be worth nothing in dollars. But real lending will only start when real savers (private capital) sees real value at the right risk. That occurs at lower prices.No positions in stocks mentioned.Minyanville staff and contributors may trade or hold securities that are discussed in an article. Staff and contributors will indicate whether they have a position in any security discussed, but will not indicate size or direction. The information on this site is not intended as individualized investment advice and all investment decisions by a reader must in all cases be made by the reader either individually or together with his/her investment professional. The views expressed in articles appearing on this site are solely those of the staff and contributors and should not be attributed to any other person or entity except where expressly stated. Minyanville staff and contributors will not respond to requests for investment advice.http://www.minyanville.com/articles/aig-fed-bank-reserves-credit-bonds/index/a/22541

MM CAMay 5th, 2009 at 3:08 pm

Sorry, but our ROOKIE president is in over his head…. I got one question? Where are the JOBS? Because all I see are NO JOBS…I do give him credit though for trying to fight the banksters, he is hitting some nerves…New Allegations Of White House Threats Over Chryslerhttp://www.businessinsider.com/new-allegations-of-white-house-threats-over-chysler-2009-5Creditors to Chrysler describe negotiations with the company and the Obama administration as “a farce,” saying the administration was bent on forcing their hands using hardball tactics and threats.Conversations with administration officials left them expecting that they would be politically targeted, two participants in the negotiations said.Although the focus has so been on allegations that the White House threatened Perella Weinberg, sources familiar with the matter say that other firms felt they were threatened as well. None of the sources would agree to speak except on the condition of anonymity, citing fear of political repercussions.The sources, who represent creditors to Chrysler, say they were taken aback by the hardball tactics that the Obama administration employed to cajole them into acquiescing to plans to restructure Chrysler. One person described the administration as the most shocking “end justifies the means” group they have ever encountered. Another characterized Obama was “the most dangerous smooth talker on the planet- and I knew Kissinger.” Both were voters for Obama in the last election.One participant in negotiations said that the administration’s tactic was to present what one described as a “madman theory of the presidency” in which the President is someone to be feared because he was willing to do anything to get his way. The person said this threat was taken very seriously by his firm.The White House has denied the allegation that it threatened Perella Weinberg.Last week Obama singled out the firms that continue to oppose his plan for Chrysler, saying he would not stand with them. Perella Weinberg says it was convinced to support the plan by this stark drawing of a line between firms that have the president’s backing and those that did not. They didn’t want to be on the wrong side of Obama. Privately, administration officials have expressed confidence that other firms will switch sides for this reason.These allegations add to the picture of an administration willing to use intimidation to win over support for its Chrysler plans–and then categorically deny it.

FEDupMay 5th, 2009 at 9:26 pm

All Obama needs now is a pin-striped suit, a hat and a cigar; he’s already got the boys from Chicago behind him.

PeterJBMay 5th, 2009 at 4:05 pm

Speaking of interesting comments:”In any event, Treasury Secretary Tim Geithner appears to have been neutralized as any sort of significant oversight authority over the current bail-out of Wall Street and the banks. Informed sources have told WMR that high-level rumors of a sex scandal involving the Treasury Secretary are swirling around both Treasury and the Inter-American Development Bank, headquartered in Washington, DC.”http://www.waynemadsenreport.com/Almost interesting code word for this RGE article comment “WeCan”Ho hum

GuestMay 5th, 2009 at 8:50 pm

i was thinking the same thing 🙂 i think they left out “yes” maybe unintentialy.

AnonymousMay 7th, 2009 at 11:02 am

@@ It’s the first five letters of the article title. Sheesh. It’s a good thing none of you watch Bob the Builder. It might short circuit your brain.

PeterJBMay 5th, 2009 at 4:33 pm

And, speaking of Academia Economica and Adam Smith:”The version of him that’s given today is just ridiculous. But I didn’t have to any research to find this out. All you have to do is read. If you’re literate, you’ll find it out. I did do a little research in the way it’s treated, and that’s interesting. For example, the University of Chicago, the great bastion of free market economics, etc., etc., published a bicentennial edition of the hero, a scholarly edition with all the footnotes and the introduction by a Nobel Prize winner, George Stigler, a huge index, a real scholarly edition. That’s the one I used. It’s the best edition. The scholarly framework was very interesting, including Stigler’s introduction. It’s likely he never opened The Wealth of Nations. Just about everything he said about the book was completely false. I went through a bunch of examples in writing about it, in Year 501 and elsewhere.But even more interesting in some ways was the index. Adam Smith is very well known for his advocacy of division of labor. Take a look at “division of labor” in the index and there are lots and lots of things listed. But there’s one missing, namely his denunciation of division of labor, the one I just cited. That’s somehow missing from the index. It goes on like this. I wouldn’t call this research because it’s ten minutes’ work, but if you look at the scholarship, then it’s interesting.”http://informationclearinghouse.info/article22546.htmHo hum and so it goes on…

MM CAMay 5th, 2009 at 4:55 pm

So where is mine and yours and ours? Does anyone for a second think we will ever gwet the trillions we have loaned/injected back…none of these companies/banks/thiefs can ever afford to pay back the billions they owe us… They would have to TAKE it from thier profits and that is not going to happenBEND OVER AMERICA and SQUEL like a swine flu pig…OUTRAGE OF THE DAY: Taxpayers Won’t Get Chrysler “Loan” Backhttp://www.businessinsider.com/white-house-confirms-taxpayers-wont-get-chrysler-financing-back-2009-5As we noted this morning, lawyers representing Chrysler said in court yesterday that the government would not be getting its $8 billion loans back, including about $4 billion in debtor-in-possession financing.Well that news was so stunning — so obviously an admission that the bankruptcy itself is a bailout to the union — that we had a hard time believing it. But it’s totally true.The administration confirmed the news to CNN:Some of the main assumptions listed by Robert Manzo of Capstone Advisory Group were that the Treasury would forgive a $4 billion bridge loan given to Chrysler in the closing days of the Bush administration, a $300 million fee on that loan, and the $3.2 billion in financing approved last week by the Obama administration to fund Chrysler’s operations during bankruptcy.An Obama administration official confirmed Tuesday that Chrysler won’t be repaying the loans. A portion of the bridge loan may be recovered by Treasury from the assets of Chrysler Financial, the former credit arm of the automaker which is essentially going out of business as part of the reorganization.

GuestMay 5th, 2009 at 8:24 pm

Finally some money well spent going to the American worker. It’s funny how so many try to lump $20 per hour factory workers in line with bankers and billionaire bond holders. Repeat after me bailing out hard working extremely modest earning workers is not the same as bailing out millionaires. One bailout saves the system the other spells doomsday.

ChignosMay 5th, 2009 at 10:38 pm

Bailouts are bailouts. The petty crook thief who gets less than the corrupt financier thief is no better just because his total loot is less. Americans need to get it straight about what is moral and what isn’t. This moral relativity is the value system behind “too big to fail.”

GuestMay 6th, 2009 at 9:07 am

Yea it’s not moral to allow runaway deflation and an unending death spiral of lost jobs. Jobs is what supports the economy not morality and not millionaire bondholders. One size shoe does not fit all unless we’re talking religion as in laisez fare religion let the weak die off nonsense that will never work so long as capital is allowed to accumulate into the hands of the few and undermine our free society. People keep trying desperately to live their lives off of a script and have every decision pre determined, take every problem and fit it to their predetermined philosophy-this is our greatest threat.

CahillMay 6th, 2009 at 3:33 pm

You completely miss the point. I would agree with you if those people were allowed to keep there jobs, but a huge percentage will be laid off and this money will never go to them. This money is for the corporate executives and the union bosses. The little guy gets screwed again. Everyone keeps missing the fact that all this bailout money hasn’t brought back one single job, layoffs are still going on in ridiculous volume. So who is really reaping the rewards on this (please don’t answer that was rhetorical)?

MarkMay 6th, 2009 at 4:08 pm

Yes! And in addition, where are the sales?As I’ve been pointing out, there are more natural forces at work that are dictating how much of what we will apply our energies toward. Clearly building Hummers isn’t an evolutionary step up.Subsidies, regardless, if left in place for any length of time, distort true sustainability. The point is whether or not the intentions behind any subsidy (package) are benevolent.Mark

MarkMay 6th, 2009 at 10:24 pm

That should have read “The point isn’t weather or not the intentions behind any subsidy (package) are benevolent.”Intent doesn’t really matter all that much: if something ends up sucking it sucks!Mark

GloomyMay 5th, 2009 at 7:10 pm

“…we believe equity investors caught up in the momentum of the moment need to keep a sharp eye on exactly what is happening in the credit markets. After all, the Fed/Treasury/Administration is compelling us to do so as they constantly focus on “unfreezing” the credit markets. Absent the influence of the Fed, these markets are not yet recovering. Absent the Fed, the credit market patient is unable to get out of bed and walk on his/her own. Let’s just hope equity investors have it dead right in their happy anticipation in recent months. For if what they are discounting is correct, especially in financial sector issues, the US credit markets should very soon be involved in a Lazarus event – an immediate rising from the dead. But for now, it’s really the Fed holding up the credit markets, from which they cannot have a current exit plan by any stretch of the imagination. The credit markets ARE the issue for the current cycle. We need to keep this firmly in mind. “http://www.contraryinvestor.com/mo.htm

GuestMay 5th, 2009 at 8:16 pm

Until the derivative hocus pocus is abandoned investors will not trust the system again. The governments insistence on carrying on the same game leaving the same untrustworthy players in power is a recipe for ultimate disaster. It’s remarkable how the government thinks a lack of transparency can continue to work going forward.

Average JaneMay 5th, 2009 at 7:15 pm

I somehow get the feeling that Mr. Buffet is standing in a pool of quicksand waving his arms saying “c’mon in, the water’s fine. . . .”

GuestMay 5th, 2009 at 8:18 pm

The guy made his mass fortune by playing the FIRE economy and now it’s over, turns out his genius was bogus leverage just like everyone else on WALL Street.

P1AQLMay 6th, 2009 at 4:58 am

You might have gotten a slightly different feeling when Buffet announced that American Express was a hell of a buy at $10 or Wells at $9.Forget the Fed, enjoy the TED!Best,P1AQL.

GuestMay 5th, 2009 at 8:35 pm

Insider selling at highest level since the beginning of the bear market in 2007http://www.bloomberg.com/apps/news?pid=newsarchive&sid=arl3VgxA0FAA

GuestMay 5th, 2009 at 8:46 pm

PeteCa you were the one who was pandering to the swine flu and pakistan taliban media hypes and now you are the one asking where did swine flu issue go. Come on give us a break please learn how to analyse information before you pass your comments on it. everything in the media is not a fact. With such abundance of information one need to have common sense, patince, knowledge of history and analytical abilities to part fact from fiction. Personal accountability is a crucial trait to have. Through out history relegions have tried to instill that trait into humanity becuase Laws only cannot gaurantee justice.

MichelleMay 5th, 2009 at 9:31 pm

Personal accountability is a crucial trait? Coming from a poster with “guest” for an identity? Give me a freaking break!

MichelleMay 6th, 2009 at 5:41 am

I take exception to the fact that an anonymous poster can call out another poster, hiding behind the veil of anonymity. The content of the message then must be discounted as the anonymous poster lacks credibility. Common sense, patience, and knowledge of history has taught me this.

GuestMay 6th, 2009 at 11:47 am

I don’t mean to point out the obvious, but everyone on this board is “anonymous”. Just because you give a name doesn’t mean it reflects reality in any way, shape, or form. For all I know, “Michelle” is a 65 year old ape from New Jersey, and PeteCA is an underwear model from Colorado.It’s the net, folks. ain’t nobody knows who nobody is…

J.ParkerMay 7th, 2009 at 6:29 am

that is very true…just because I enter “J.Parker” as my name does not mean that it is my name. So for everyone else the situation is not any different from if I entered “Guest” as my name.

Grateful GuestMay 5th, 2009 at 11:18 pm

I would say from reading PeteCA for a year or so that he is an individual who possesses a keen analytical mind. I am grateful to PeteCA for all the fantastic insight he gives on this sight.

RohelioMay 5th, 2009 at 8:50 pm

http://www.wilmott.com/blogs/satyajitdas/index.cfm/2009/5/1/Banking-Fortunes–From-Catastrophic-to-Just-AwfulSatyajit discusses all the one-offs and subsidies that are the fudge.Banks reported better than expected profits. U.S. banks seem likely to pass the “stress” test. Repayment of taxpayers funds by some institutions, at least, seemed imminent. Scrutiny suggests that the episode reflected Adlai Stevenson’s logic: “These are conclusions on which I base my facts.”Further, newspeak…..The Federal Reserve hinted that banks even banks that passed the “stress test” would be required to hold extra capital. This is puzzling as surely a bank is appropriately capitalised or it is notAmusingly, Peter Hahn, a former managing director of CitiGroup and now a fellow at London’s Cass Business School was reported by Bloomberg as saying: “When you look at the income numbers that have been put out by banks recently they contain so much fudge and financial manipulation. You could say that the automobile industry has a clearer future at the moment.”

MichelleMay 5th, 2009 at 10:34 pm

This morning the headlines read “About 10 Banks Need Capital”. What is that supposed to mean? 11, 12, 20, 9??? 10 and a half? Federal regulators made this statement and just add to the lack of transparency and credibility of these agencies. How can an agency not know how MANY banks need capital?When will the other tiers of capital begin being questioned? These off-balance sheet assets (or should I say liabilities) never come into the spotlight any longer, it’s always about tangible common equity, as though Tier 1 is all that exists. The accounting schemes are numerous and the bottom line is that nobody really seems to care whether or not a company is solvent. If the Fed is going to backstop systemically important companies, why does solvency matter? So what if the dollar tanks, we own the world. We call the shots. We work with systemically connected countries and coordinate more manipulation to keep the Ponzi scheme going full force.As Rothschild proclaimed: “Let me issue and control a Nation’s money and I care not who makes its laws”. REMEMBER THIS QUOTE!

Pecos BankerMay 6th, 2009 at 12:36 pm

OK folks, time for us taxpayers to pony-up and give those banks the money they need to meet their stress test capital requirements!

MarkMay 6th, 2009 at 4:10 pm

Hey, and when are they going to perform a citizen stress test? Maybe that way the citizens can get free money from someone?Mark

GuestMay 5th, 2009 at 9:05 pm

In the first hundred days of Obama we have prety much seen the direction he will take during his tenure. It wont be easy for him to walk back from the decisions he have already taken in the domestic and foriegn arena and he still remains popular. I think it will be interesting to discuss where will obama be in next 8-12 months.

GSMMay 5th, 2009 at 10:50 pm

The stress tests and zombie banks are only one act in this play..What we are witnessing, all of it- Detroit, Wall St Bank Bailouts, Stock markets, Fannie/Freddie, Mortgage Relief, TARP/TALF , Fed balance sheet, Q.E ., FASB – ALL OF IT, is simply a very intricate and desperate game of musical chairs. It’s an illusion. What we see is Treasury and Fed frantically propping up with string and tape, what is clearly the US Ponzi financial system.It is all a play for time. A “confidence” trick.http://www.debtdeflation.com/blogs/Underpinning the effort in fabricating this illusion, is the unswerving belief by the US Administration and Fed that “if only we can credit could get moving again, the problems would be largely solved”. Well, right now and unless something very dramatic changes things, ALL credit for the US economy is being provided by the US Taxpayer. Other than that, there is NO CREDIT on offer – period. Credit and collateral for it has been shredded. That is an unsustainable dynamic. Worse- it is inherently dangerous.So the question is one of time. How long before the US can create the confidence needed to grow sufficient organic credit within it’s financial system? How long will the world accept US debt notes? For how long will US consumers save, rather than spend? How long will the world continue to put faith in the USD? For answers, look to the Treasury markets. US sovereign debt holders are getting nervous about Ben/Obama’s ability to fix the undermined foundations of the US financial system . Technically, the Long Bond has SELL written all over it. This is not good news for Ben and Obama as higher long rates makes their task of finessing any kind of stabilization exponentially much more difficult. If the Bond markets lose faith in these pair now, there is no stopping the US economic decline and “recovery” is a dream.

GuestMay 6th, 2009 at 11:52 am

Ken Lewis: “Hank made me do it.”Government: “BoA needs $33.9 Billion”. Investors run for the door.Other banks: “Got it.”

PeterJBMay 6th, 2009 at 3:47 am

Good Market News, er, really?:”05 May 2009Insiders Continue to Sell Aggressively Into This RallyAccording to reports corporate insiders continue to sell aggressively into this rally, with sells outweighing buys at levels not seen since the market top in 2007.”http://jessescrossroadscafe.blogspot.com/2009/05/insiders-continue-to-sell-aggressively.htmlHo hum

GuestMay 6th, 2009 at 5:22 am

Today benanke said that he is sure there will be positive growth by the end of this year. I think it shows either he is very confident about his assesment or he is desparate thats why he have put his reputation on line.

Brett in ManhattanMay 6th, 2009 at 7:12 am

Considering how acurately he predicted this crisis, why should we doubt his prognostications about the future? Oh, wait.

The AlarmistMay 6th, 2009 at 4:10 am

To paraphrase the punchline for the old joke about outrunning the angry grizzly bear,We don’t have to subsidise the banks forever; we only need to do it until we have fully remade the politico-economic system we used to call capitalism and deprived you of all of your wealth by other means.Yes, We Can!

FEDupMay 6th, 2009 at 8:07 am

Fantastic market rally news: ADP says “U.S. companies reduced payrolls by 491,000 in April indicating the worst of the recession’s job losses may have passed. This was down from a March reading of 708,000 workers.” Now let me use my 4th grade math skills and multiply 491,000/month x 12 months/yr to get 5,892,000 or approximately 6 MILLION JOBS lost on a yearly basis! Well, that sounds great; what an improvement; let’s pull the cork out of the champagne bottle or turn on the keg and start the celebration!

MarkMay 6th, 2009 at 8:46 am

And when it’s down to 1, as in the last person employed, we can really party! 1 is a really low number! :-)Mark

MarkarMay 6th, 2009 at 9:33 am

exactly. Further cuts will eat into the flesh of these companies, so obviously the monthly losses will retreat. This is by no means an indication of a recovering economy, when no one is hiring and continued claims are at records. But why should the markets worry about such details. It’s all good news. Rally on!

AnonymousMay 6th, 2009 at 9:44 am

Dear ladies and gentlemen,The fact is the FDIC has always been the appropiate agency to deal with insolvent banks; however, the BIG BOYS: JP Morgan, Goldman Sacks among others, have managed ( through large contributions or indirect bribes to past and current government officials )to allow the FED to perform the Stress Tests ( which is the greatest robbery in world history )because of the Conflict of Intrest of a supposedly Independent entity which represents the BIG BOYS interests, among others.Please focus on the true facts; otherwise, your retoric seems to be similar to the governments.Kind Regards

MM CAMay 6th, 2009 at 10:26 am

NO JOBS equals more of the below happening… I seriuosly doubt the Stress tests factor in all the below trends…Almost One-Quarter of U.S. Homeowners Underwater as Values SinkMay 6 (Bloomberg) — A growing number of U.S. homeowners owe more than their properties are worth after prices extended their two-year decline in the first quarter, Zillow.com said.Almost 21.8 percent of all owners were underwater as of March 31, the Seattle-based real estate data service said in a report today. At the end of the fourth quarter, 17.6 percent of homeowners owed more than their original mortgage, while 14.3 percent had negative equity three months earlier.Property values dropped 14 percent from a year earlier in the first quarter, reducing the median value of all U.S. single- family homes, condominiums and cooperatives to $182,378, Zillow said. The gain in underwater homeowners will lead to more bank repossessions, the company said.Many owners “would be more willing to bear the financial consequences of bankruptcy or foreclosure,” Stan Humphries, Zillow’s vice president of data and analytics, said in an interview. “You are going to continue to see home prices fall for the rest of this year and some portion of next year.”The recession cut home values by $2.4 trillion last year, First American CoreLogic said in a March 4 report. More than 8.3 million U.S. mortgage holders owed more than their properties were worth and an additional 2.2 million borrowers will be underwater if prices decline another 5 percent, the Santa Ana, California-based seller of mortgage and economic data, said in the report.Unemployment RisingThe data demonstrates the challenges facing Federal Reserve Chairman Ben S. Bernanke and the Obama administration as they seek to spark a housing recovery. The Fed has pushed 30-year fixed home loan rates to a record low by purchasing mortgage- backed securities. The jobless rate jumped to 8.9 percent last month from 8.5 percent in March and employers cut at least 600,000 workers from payrolls for a fifth straight time, according to the median estimate in a Bloomberg News survey ahead of a May 8 Labor Department report.The U.S. market with the biggest drop in home values in the first quarter was Salinas, California, where the median price fell 37 percent to $301,793 from year earlier, Zillow said.About 32 percent of all homes there were worth less than what’s owed on them, Zillow said. Among the worst-performing markets, Salinas was followed by Redding, Stockton, Madera, and Vallejo-Fairfield, all in California. The company estimates values for homes, whether or not they are sold in the period tracked, in 161 metropolitan areas.Foreclosures DominateIn 85 of the markets tracked, the annualized home-value change over the past five years was negative or little changed. About 20 percent of all home transactions in the past 12 months were foreclosures, and short sales made up about 12 percent. A short sale is when a home is sold for less than the outstanding mortgage balance.The data for Zillow’s study dates to 1996 and comes from public records, the closely held company said. Its mortgage figures come from information filed with individual counties.The decline in values is holding potential sellers back from putting their properties on the market, the company said. In a separate survey of homeowner sentiment, 31 percent of homeowners said they would be at least “somewhat likely” to put their property up for sale in the next 12 months should they see signs of a recovery.

Average JaneMay 6th, 2009 at 1:51 pm

Yep, the sellers are waiting for the home values to “come back to where they SHOULD be.” (Emphasis mine.)Any hope of affordable housing, an oxymoron in these days, is gone. The People MUST have their overinflated home values back because The Home, after all, equals the Retirement Plan.

MM CAMay 6th, 2009 at 10:31 am

The PTB continue to screw All americans… They are using this downturn to once and for all rape Average American workers of everything, be it pensions, health care, wages, DECENT JOBS, and most of all a sense of worth and Hope achieved by working hard…Wells Fargo freezes traditional pension planJames Temple, Chronicle Staff WriterWednesday, May 6, 2009Wells Fargo & Co. told employees on Monday it will no longer contribute to their traditional pension plan, effectively cutting the total compensation of its workers less than two weeks after announcing record first-quarter profit.——————————————————————————–Get QuoteSymbol Lookup——————————————————————————–More BusinessStocks mostly rise on hopes of easing unemployment 05.06.09PepsiCo CEO reiterates interest in bottlers 05.06.09Amazon’s larger Kindle for textbooks, periodicals 05.06.09Bank of America may need $34B in new capital 05.06.09——————————————————————————–The San Francisco bank is combining its existing program with that of Wachovia Corp., the Charlotte, N.C., bank it acquired in December, and freezing both companies’ cash balance plans, a type of defined benefit plan.”We must manage expenses prudently to help Wells Fargo continue our long track record of profitable growth so have decided to have one team member retirement plan for the combined company,” spokesman Chris Hammond said in a statement. “These decisions were difficult and we are confident that we’re taking the right steps to ensure the long-term strength of our company.”He said the bank will maintain the dollar-for-dollar match for its 401(k) plan, up to 6 percent of pay.Current participants in the cash balance plans will keep their accrued benefits and account balances, but no new employees can enter the program, according to an internal memo from Julie White, executive vice president of human resources at Wells, obtained by The Chronicle. Workers can take distributions from the plan after they leave the company.One Wells Fargo employee, who requested anonymity because the individual wasn’t authorized to speak to the media, said Wells Fargo’s strong benefits plan has been crucial in keeping the company competitive in terms of recruitment.”Now the benefits side is deteriorating,” the worker said. “It’s a big disappointment. There is a feeling of lack of loyalty.”Late last month, Wells Fargo reported that the Wachovia takeover and surging deposits propelled first-quarter net income to $3.05 billion, up 52 percent from a year earlier. But the company’s capital levels have been stretched by acquisition costs, credit write-downs and increased lending.Reports began leaking out Monday that regulators may force the company to raise additional capital to protect against potential future losses, after government stress tests concluded the San Francisco bank would struggle to survive a deeper recession.Wells Fargo is just the latest in a long line of companies freezing their pension plans as the economy slid into recession, said Karen Friedman, policy director at the Pension Rights Center. At least 14 major companies have done so this year, including beermaker Anheuser-Busch Cos. and newspaper publishers McClatchy Co. and E.W. Scripps Co., according to the Washington, D.C., consumer group.”Because of the collapse in this country, companies are saying they can’t afford it,” she said. “The question is whether it is true or if they’re using (the downturn) as an excuse.”Separately on Tuesday, the Charlotte Business Journal reported that Wells Fargo plans to lay off 548 workers in Charlotte.

MM CAMay 6th, 2009 at 10:34 am

Could not have said it better!!!! How can 300 million Americans concerns be so ignored….Nation Ready To Be Lied To About Economy AgainMay 4, 2009 | Issue 45•19http://www.theonion.com/content/news/nation_ready_to_be_lied_to_about?utm_source=patrick.netWASHINGTON—After nearly four months of frank, honest, and open dialogue about the failing economy, a weary U.S. populace announced this week that it is once again ready to be lied to about the current state of the financial system.Tired of hearing the grim truth about their economic future, Americans demanded that the bald-faced lies resume immediately, particularly whenever politicians feel the need to divulge another terrifying problem with Wall Street, the housing market, or any one of a hundred other ticking time bombs everyone was better off not knowing about.In addition, citizens are requesting that the phrase, “It will only get worse before it gets better,” be permanently replaced with, “Things are going great. Enjoy yourselves.””I thought I wanted a new era of transparency and accountability, but honestly, I just can’t handle it,” Ohio resident Nathan Pletcher said. “All I ever hear about now is how my retirement has been pushed back 15 years and how I won’t be able to afford my daughter’s tuition when she grows up.””From now on, just tell me the bullshit I want to hear,” Pletcher added. “Tell me my savings are okay, everybody has a job, and we’re No. 1 again. Please, just lie to my face.”The national call for decreased candor began last month, after the Department of Labor released another soul-crushing report that most Americans agreed “wasn’t helping anything” and “didn’t need to be so specific, at least.”The report estimated that 663,000 private and public sector jobs were lost in the month of March—a revealing statistic many people found shockingly blunt. Responding to the new information, an overwhelming majority of citizens said they believe that, during these extremely uncertain times, our leaders have a responsibility to come together, sit the American people down, and lie through their teeth about everything from misappropriations of taxpayer dollars to the severity of the credit crisis.”I don’t need to be constantly reminded that the lack of regulations on Wall Street compounded with failing institutions like AIG basically plunged the world economy into a global recession,” said 32-year-old office manager Alexis Harrington. “What I want is for someone to tell me with a straight face that the GDP is through the roof so that I can feel better and instantly forget what all these terms even mean.””For the first time in my life I know who the secretary of the treasury is,” Harrington continued. “And I don’t like it.”Reluctantly informed citizens like Harrington have also asked that CEOs of the nation’s five largest banks release a joint statement saying that the October bailout worked perfectly, normal lending has resumed, and that we’re nowhere close to having the entire monetary system collapse upon itself like a house of cards.According to a CBS News/New York Times poll, 98 percent of Americans no longer appreciate President Barack Obama’s attempts to break down the economic crisis into simple terms they can understand. Instead, many say the president should have the decency to insult their intelligence by using complex jargon to confuse and deceive them, perhaps even implying that the subprime mortgage fallout was just a big misunderstanding that resulted from a clerical error.”I know when he’s telling the truth, and it bothers me,” recently laid-off schoolteacher Mary Hanover said of Obama. “He gets this serious expression on his face and says things like, ‘This is the worst economic crisis since the Great Depression.’ Who needs to hear that? For Christ’s sake, smile a bit and say we just found a diamond mine under Montana that’s going to pay for everything. I’ll believe you.””Please, treat me like a child. Treat me like a five-year-old,” Sacramento resident David Cooke, 64, wrote in a letter to Congress. “I lost everything when the Dow tanked, and I’m too old to start working again, so why punish me further by explaining in detail the clever ways these investment firms ripped me off and how they’re all going to get away with it?”Thus far, many policymakers in Washington have responded favorably to their constituents’ requests, saying they respect and understand the public’s need for dishonesty.”I think we can accommodate the American people on this,” Senate majority leader Harry Reid (D-NV) told reporters. “Why, just today we made excellent progress with GM, whose CEO Fritz Henderson told us that every penny of federal and taxpayer funds would go directly to the construction of three new auto plants in Detroit that will create over 90,000 new jobs and spark the economic rebound we’ve been waiting for.”Continued Reid, “Things are looking very, very bright.”

GuestMay 6th, 2009 at 12:25 pm

Well, buy God, I think Congress, the Executive branch, and Wall Street can accomodate you’all just fine on this. Hey, it’s a win/win, the American public gets to hear what they want to hear and “feel good”, and the aforementioned get to cointinue exploiting their positions for personal wealth. Let’s do it!

GuestMay 6th, 2009 at 12:28 pm

Hey, why not. We are no where near a citizens violent revolt, say akin to the revolutionary war. Just keep the “entertaining” TV programing comming.

AnonymousMay 6th, 2009 at 11:15 am

From James Surrowieckihttp://www.newyorker.com/online/blogs/jamessurowiecki/2009/05/misquoting-the-imf.htmlMISQUOTING THE I.M.F.The economists Matthew Richardson and Nouriel Roubini argue today in the Wall Street Journal that, the stress-test results notwithstanding, the U.S. banking system remains “near insolvency,” thanks to the massive losses that the banks still have yet to take on their toxic assets. Given Roubini’s previous writing on this subject, his conclusion comes as no surprise. What is surprising is that Roubini and Richardson cite the I.M.F. as supporting their conclusion. They say the I.M.F. “estimated losses on U.S. loans and securities” to be $2.7 trillion, and that the U.S. banks and broker-dealers accounted for more than half those losses.The use of the $2.7 trillion number is itself dubious, since it’s guaranteed to confuse any unobservant reader. The $2.7 trillion isn’t, as it seems to be, the total projected losses for U.S. banks. Instead, it’s the total losses the I.M.F. projects for assets that originated in the U.S. but are now owned by banks all over the world. That’s an interesting number to know, but it has nothing to do with how much trouble the U.S. banking system is in. (In fact, according to the I.M.F.’s Global Financial Stability Report (pdf), the source of these numbers, banks in Europe and Great Britain appear to be facing far more future pain than American banks.) To know how much trouble the I.M.F. thinks U.S. banks are in, you need to know how much of that $2.7 trillion in losses it thinks U.S. banks will end up being responsible and how much of those losses the U.S. banks have already written off.Roubini and Richardson imply that the I.M.F. believes that U.S. banks and broker-dealers account “for more than half those losses,” which would put their losses at $1.4 trillion or more. But the I.M.F. report projects total losses for U.S. banks through 2010 at $1.06 trillion (see page 34), which is quite a bit smaller, although I guess you could say, “What’s $350 billion between friends?”At the same time, according to the I.M.F., through the end of 2008 almost half those losses ($500 billion) have already been written down by U.S. banks, and they’ve raised almost $400 billion in capital through the end of last year. When you adjust for projected future losses and writedowns, the I.M.F. concludes (as I mentioned yesterday), that U.S. banks need $275 billion in equity capital (all of which could, in theory, be provided by converting the current TARP investment into common stock).That’s still a pretty big number, and it hardly sounds the all-clear siren for the U.S. banking system. But the I.M.F. report simply doesn’t paint a picture of U.S. banks that’s anywhere near as bleak as Richardson and Roubini say it is. Now, their estimates of U.S. losses are considerably higher than the I.M.F.’s, and if they’re right (and certainly Roubini’s track record has been very good), then many U.S. banks will, sooner or later, be insolvent. But it’s deceptive to cite the I.M.F. as supporting that conclusion when, in fact, its report suggests something very different.

GuestMay 6th, 2009 at 1:03 pm

Ford F150 and Chevy Silverado ranked 1 and 2 last year in vehicle sales. As we know Obama wants clean electric cars, and JOBS. How do you suppose he will crash the dollar after our auto companies are re-tooled? Seems inevitable that our system is dependant on a lower dollar to create jobs and looks like the auto industry is preparing for demand to change from SUV’s (http://money.cnn.com/2009/05/06/autos/ford_focus_plant/index.htm?section=money_latest) Is there a source on the ways to devalue the dollar? The only one I know is to go into more and more debt, or keep printing. Of course higher inflation would typically result in higher interest rates, but could they keep rates low long enough to avoid disaster on further real estate losses?hlowe

alan.comMay 6th, 2009 at 1:26 pm

who told me it is not a bull market?who said it is still a L/U/W/ shape recession?

belevoMay 6th, 2009 at 2:07 pm

Unfortunately it is the bulls who will cry and jump out of the building in the end. I have heard the cracking sound beneath your feet.

GuestMay 6th, 2009 at 3:24 pm

Any thought on exactly what’s going to be the catalyst for the next big move down (and I don’t mean a 5 to 10% correction)?

MM CAMay 6th, 2009 at 4:03 pm

GM,Pensions, China, oil rise, State and local govts imploding, NO JOBS…. and by no means is the liquidity and crdit and banking crisis over… could also be Afghan and pakastini trouble also… overall, probaly all of it….PS: Chryslar is shut down or does anyone care because its yesterdays news…

GuestMay 6th, 2009 at 5:00 pm

Probably the new wave of foreclosures and the continued losses of the financials. Commercial real estate is a time bomb too.

MM CAMay 6th, 2009 at 4:02 pm

GM,Pensions, China, oil rise, State and local govts imploding, NO JOBS…. and by no means is the liquidity and crdit and banking crisis over… could also be Afghan and pakastini trouble also… overall, probaly all of it….PS: Chryslar is shut down or does anyone care because its yesterdays news…

GuestMay 6th, 2009 at 4:34 pm

It all comes down to this: We need a movement to vote out all the senators and representatives, even if we approve of them. Vote out the incumbents! That’s the only arrow in our quiver. Spread the word: Vote out the incumbents! Nothing else will work. As Dmitri Orlov says, we will then get change that we can suspend disbelief in. Nobody in that congress of pigs is indispensable. Vote ’em out and vote in other incompetents. Then vote those idiots out as well. Write in your dog’s name if necessary. Vote in every election for the sole purpose of firing incumbents. It’s that simple. No other “solution” has a chance of working, and it’s entirely legal.It all comes down to this: We need a movement to vote out all the senators and representatives, even if we approve of them. Vote out the incumbents! That’s the only arrow in our quiver. Spread the word: Vote out the incumbents! Nothing else will work. As Dmitri Orlov says, we will then get change that we can suspend disbelief in. Nobody in that congress of pigs is indispensable. Vote ’em out and vote in other incompetents. Then vote those idiots out as well. Write in your dog’s name if necessary. Vote in every election for the sole purpose of firing incumbents. It’s that simple. No other “solution” has a chance of working, and it’s entirely legal.

HubbsMay 6th, 2009 at 4:49 pm

Your clarion call is worth a double post guest.Definition of a politician: one who seeks re-election…it’s as simple as that.

Guest blindlyMay 6th, 2009 at 4:50 pm

i am on board!That’s the only arrow in our quiver. Spread the word: Vote out the incumbents! Nothing else will work. As Dmitri Orlov says, we will then get change that we can suspend disbelief in. Nobody in that congress of pigs is indispensable. Vote ’em out and vote in other incompetents. Then vote those idiots out as well. Write in your dog’s name if necessary. Vote in every election for the sole purpose of firing incumbents. It’s that simple. No other “solution” has a chance of working, and it’s entirely legal

Guest blind bearMay 6th, 2009 at 5:15 pm

g,ps.i will also email, call, and mail my “representatives” andinform them that they will not get my vote under anycircumstance, no matter what they do between now and such timeas they are voted out as they have participated in the bordello-ization of the primary institution that differentiates afascist regime from a “democratic” representative republic..as long as the other departments of government, justice,investigative and intelligence see no reason to pursue crimescommitted against the people in the name of the people itwould suggest now is a great time for the existing”representatives” to steal as much as humanly possible.being of generous soul i wish them god speed.

MarkMay 6th, 2009 at 10:35 pm

Unfortunately one problem is that these b*st@rds will turn around and lobby. New politicians = new staff = ripe of the picking (by the wealthy lobbyists) :-(It’s the SYSTEM. The Bolsheviks got rid of all the old politicians, That didn’t turn out well!Mark

AnonymousMay 6th, 2009 at 10:47 pm

MarkCommunism (Socialism) FailedCapitalism FailedDemocracy in essence Failed (you control the masses youre numero uno)so what then??there’s an empire that spread from 7th Century up to 14th Century, modern business practices (the good ones) were based from this era, they created cheques, Spain flourished, Baghdad as well, early modern science was based from scientist in this era (yeah some say they studied the greeks and other past knowledge and improved on it, so what.. advancement is still an advancement)This empire fell because of internal fued,self-enriching Sultans busy with their harems, external parties taking advantage on the situation… not because of the system it practices

SantaClausMay 7th, 2009 at 6:20 am

I guess any system would work as long as its success would not produce humans that are so cotton-picking corrupt. Some systems result in human corruption sooner than others.Perhaps we need a system where no country nor any human has any real power. That would mean that e.g. USA would not have any more power than some third-world country; I do not mean that US is lowered down, but that other countries are “raised up” (in power level, that is).Perhaps this sort of a system can be “advocated” through some sort of a mechanism – meaning that it would be able to exist because of a support mechanism. For example insects can cooperate as a swarm (without a leader) because of their communication mechanisms.Technology has also provided mankind communication mechanism – maybe this could be used to “reconfigure” the world as a swarm rather than as a group of nations?(yes I know sounds quite far fetched)

GuestMay 6th, 2009 at 4:53 pm

The headline of a Yahoo tech ticker article reads”Elizabeth Warren: Americans Aren’t Here to Serve the Banks, They’re Here to Serve Us”Many of the user comments are blasting her saying how dare she say Americans are here to serve the government.At the end of the article it finally states her quote “American families are not here to serve the banks,” she says. “The banks are here to serve the American people.”Isn’t it amazing the way these media idiots change things in the headline to mislead people? And isn’t it amazing that people are so lazy that they can’t read?

MichelleMay 6th, 2009 at 8:41 pm

“and isn’t it amazing that people are so lazy that they can’t read?”I call them Headline Readers, and what’s worse is that they actually think they’re know what they’re talking about.

GuestMay 7th, 2009 at 6:25 am

I have seen this often with political news. Some person in China or Russia or Iran supposedly said or did something, or something happened. But after you read the article (“in between the lines”, sometimes) you get a feel that the truth could be a bit different.Sometimes articles are written not by news-journalists but by agenda-journalists…people who have an agenda with their articles.

GuestMay 6th, 2009 at 4:54 pm

‘Green Shoots’ Won’t Lead Economies Out of Woods: Matthew LynnMay 5 (Bloomberg) — Spring has arrived and everyone is fed up talking about the greatest depression since the 1930s. So now there are “green shoots” everywhere.On one day last week, Bloomberg carried 118 articles and research reports from many sources in which the most durable of horticultural metaphors was deployed. They weren’t isolated cases.“I do indeed see green shoots for the European economy,” Ewald Nowotny, a council member of the European Central Bank, said at a press conference in Vienna last week.“We’re beginning to see some healthy signs — the stirrings of what I call green shoots,” Federal Reserve Bank of Dallas President Richard Fisher said last month.The trouble is, most of them are nonsense. Over the next few months, you are going to hear a whole series of increasingly ridiculous and bogus signals of recovery trumpeted as if they heralded the end of the recession. All will be meaningless.Here’s a fool’s guide to four types of “green shoots,” all of which can be ignored by anyone trying to work out where the economy is going.One: It’s no longer getting worse.“The economy has continued to contract, though the pace of contraction appears to be somewhat slower,” the Federal Reserve’s Open Market Committee said in a statement last week in which it signaled that — yup, you guessed it — the emergence of all those “green shots” meant it didn’t have to do much more to stimulate the economy. So, to get this straight, the economy is still falling off a cliff, only not falling quite so fast as it was a few months ago. It is, however, still getting smaller, which means everyone is getting poorer. At the risk of spoiling everyone’s fun, there is a big difference between that and the economy actually starting to recover.Two: We applied the medicine, so stop complaining.“I am confident that the innovative policies being pursued by the Federal Reserve will facilitate and, indeed, expedite the recovery process,” said the Fed’s Fisher in the same speech in which he forecast the healthy emergence of those “green shoots.” It is pretty much the same message pumped out by central bankers around the world: We have cut interest rates, printed money and pumped up demand. We have a computer in the basement that says when you do all of those things, the economy will start to recover. There is just one snag: What if you have the wrong diagnosis and the wrong cure? Just applying the medicine doesn’t tell us anything, and certainly not that the patient is about to get up and start walking again.Three: The stock market says so.Indeed it does. The markets aren’t so much spotting “green shoots” as a whole flowerbed of roses and tulips. Europe’s Dow Jones Stoxx 600 Index has erased all its losses from the early part of the year and shows every sign of kick-starting a new bull market. It climbed 13 percent in April, the biggest monthly gain since data for the index started in 1987. Most other major markets around the world have staged similar rallies.“All the things are in place for the bear market to have ended,” Anthony Bolton, president of investments at Fidelity International, said in an interview.Again, there’s a snag: The stock market doesn’t have any more of a clue about what will happen than the rest of us. It has predicted at least 12 of the last two recoveries, and nine of the last five recessions, to paraphrase economist Paul Samuelson. One consequence of the credit crunch is that we should stop believing the markets are much good at predicting anything. After all, they didn’t see the blow-up in the markets, and that was happening right under the noses of professional investors. There’s no point in imagining the same people can spot a recovery now.Four: Business leaders are more optimistic. Some of the most respected names in business are blooming with confidence. Those “green shoots” are “turning into daffodils” Goldman Sachs Group Inc. Chief Economist Jim O’Neill said in an interview last week, after raising his forecast for global growth next year.Consumers want to “move on” from the economic decline, said Stuart Rose, chief executive officer of U.K. retailer Marks & Spencer Group Plc, as if the recession were just some tiresome psychological condition we could just snap out of.Ignore them. Business leaders are perennially optimistic. It is part of their job. To get to the top of a big company you have to be constantly “breaking new ground,” “pushing the envelope” and “taking things to the next level.” The gloomy realists don’t make it to the board — even though, of course, they are often right.The reality is, no one knows where the global economy is going at the moment. We are living through the worst recession since World War II, but much has changed since then. It’s time those “green shoots” were “nipped in the bud.” To deploy a simile from a different part of the garden, “we’re not out of the woods yet.” And we won’t be for a long time.

MM CAMay 6th, 2009 at 5:06 pm

Green Shoots? where did this term come from… As far as im concerned all these “GREEN SHOOTS” are just like a new born baby who shoots green stuff… it’s sticky, icky and stinky and gets thrown away immediatley…. GREEN SHOOTS these days does not equate to JOBS… There are NO JOBS on the horizon…

Average JaneMay 6th, 2009 at 9:39 pm

The term “green shoots” came from an interview of Bernanke on “60 Minutes” a month or so ago.Love your “NO JOBS” mantra, MM CA, because it’s so true. The market’s celebrating a monthly job loss of “only” just under 500,000. (Yee-haw. Things are turning around!)Astonishing. We are truly living in LaLa Land.

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http://www.reuters.com/article/ousiv/idUSTRE54511C20090506Global equities are in a bear market rally: RoubiniWed May 6, 2009 1:18am EDTSINGAPORE (Reuters) – Rallying global stock markets will likely reverse trend later this year when weak earnings and economic news surprise investors, Nouriel Roubini, a well-known economist who predicted the credit crisis, said on Wednesday.”This is still a bear market rally,” Roubini told a financial seminar. Roubini is chairman of independent economic research firm RGE Monitor and professor of economics at the Stern School of Business at New York University.He gave three reasons why investors ought to be cautious about the rally that has seen the Dow Jones Industrial Average .DJI rise 27 percent in two months and taken Asian stocks .MIAPJ0000PUS 42 percent higher over the same period.Roubini expects macroeconomic news to be worse than expected, lower than expected earnings, and more bad news from the banking sector or an emerging market crisis.”We will discover soon enough there are a lot of financial shocks.”While financial markets are mending, we are going to see negative surprises in the next few quarters,” he said.”Markets are getting ahead of themselves.”

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” … when weak earnings and economic news surprise investors … “@ Guest on 2009-05-06 17:26:06 (Roubini)All I can say is that Roubini clearly understands that “investors” (read: the losers) must truly be a very mentally challenged (read: dumb) lot; er, as such, they will obviously / clearly / unquestionably / undoubtedly (etc.) receive that which they are about to deserve.Ho hum

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